Looks Like Another Rate Cut Is Imminent

The greenback range traded yesterday against the EUR and the Sterling on a day which was relatively devoid of significant economic data. The main U.S news release of the day was the NAHB Housing Market Index which came in slightly better than the expected figure of 17. This Index measures the demand outlook of single-family home builders, and the improved figure is a positive sign for the housing sector. Although the greenback was relatively stable against the EUR and the Sterling yesterday, it did strengthen sharply against the higher yielding currencies on the back of a noticeable carry trade unwind. The carry trade unwind was mainly driven by the risk averse attitude of investors which resulted from concerns of further problems in the troubled global financial sector and consequent falls in equity markets. Usually the risk-averse sentiment tends to benefit the greenback as investors seek a “safe-haven” for their funds. Now although the greenback did gain, it did not benefit as much as it should have indicating that it is beginning to lose its safe-haven status.

Looking ahead, later on today we are expecting the Housing Starts and Building Permits figures which will shed more light on the status of the troubled U.S housing sector. Both figures are forecasted to release weaker than last month, but there is strong possibility of an upside surprise as last months rate cut by the Fed should have provided the housing sector with some reprieve. Also due out today have the FOMC Meeting Minutes which will provide detailed insights regarding the FOMC’s stance on monetary policy. Investors will be paying close attention to this report as they will comb it for hints regarding future interest rate changes. If yesterday’s strong risk-aversion sentiment persists then we will see the greenback continue to gain against the high yielders, while on the other hand dropping sharply against the JPY. It may also experience some volatility today against the EUR and the Sterling if the FOMC Minutes are dovish with regards to future monetary policy.