The Greenback Still Roams Bearish Grounds

Yesterday the greenback weakened sharply all across the board on the back of the release of the FOMC Meeting Minutes. The greenback slipped to new all time low against the EUR touching the 1.4852 mark, as the minutes gave another strong indication to the market that the Fed will once again cut rates in order to prevent the U.S economy from slipping into recession. The Fed indicated that it expects U.S growth to slow to between 1.8 and 2.5 percent, which is much lower than previous forecasts. Therefore the Fed is now expected to cut rates by at least 0.25%, in order to stimulate growth by attempting to alleviate the housing and credit crisis.

However the dollar selling began well before the FOMC Minutes with the release of weaker than expected Building Permits figure. This figure was forecasted to come in at 1.20M but it released at 1.18M, showing a sharp drop from last month’s figure of 1.26M. This downside surprise increased the pressure on the greenback as it indicated that the earlier rate cut by the fund is struggling to provide the housing slump with some reprieve and it raised concerns of curbing future economic growth. There was some positive news for the greenback as the Housing Starts figure released better than expected, but this was greatly overshadowed by the negative Building Permits figure and by the FOMC Minutes. The weakness of the dollar yesterday also caused commodities to become more appealing to investors and this shoved Crude Oil passed the key $99 mark. The rising price of oil coupled with the continued subprime crisis will put immense pressure on the U.S economy. However the weak dollar may cause exports to boom as U.S exporters become more competitive on the global market.

Looking ahead to today, the most important news to be released from the U.S will be Unemployment Claims, which is expected to release slightly weaker than last month and Consumer Sentiment, which is forecasted to remain unchanged. If these figures do not cause any major surprises then the greenback should consolidate today after dropping to record lows yesterday. However the dollar sentiment is still very bearish and this is not likely to change in the near future, particularly since many analysts believe that it is in the Fed’s interest to maintain a weak dollar.