The Dollar hit a new record low against the euro on Tuesday as a surprise plunge in US consumer confidence to nearly two-year lows raised expectations of another Federal Reserve interest rate cut next month. This was the fourth straight session that the Dollar tested all-time lows against the Euro, which has gained on signs of weaker US growth and the view that lower US rates will continue to erode the Dollar's yield advantage. That view gained more traction on another report on Tuesday showing sales of existing US homes slipped by 4.3% in August, a sign of yet more weakness in the housing market.
The Fed's half point cut in its benchmark overnight lending rate last week left the Dollar on the defensive, and interest rate futures are pricing in a 95% chance of a quarter point cut in October, up from 72% on Monday. The fed funds rate is at 4.75%, while the euro-zone refinancing rate stands at 4%.
The EurUsd last traded at 1.4147 up 0.52% and just below an all-time high of $1.4162 hit earlier. The Dollar also fell against the Yen, trading at 114.62, down 0.19% after having hit 114.02 low on the day. The Dollar rose against Sterling, however, after a report in a British newspaper sparked worries over troubles in the UK financial sector arising from the credit crisis. GbpUsd traded at 2.0182, down 0.1%, after touching 2.0085 low on the day.
The US Conference Board's index of consumer sentiment fell to 99.8 in September, the lowest since November 2005 and down from 105.6 in August. Economists expected a more modest slip to 104.0. Earlier, the Euro was unfazed by a report showing German Ifo business confidence survey surprised on the weaker side. Analysts said the Ifo survey was yet another sign of a softening in the euro zone economy, a situation that hinted at steady interest rates there for the rest of 2007 and possible monetary easing early next year. Some analysts say the prospect of a future euro-zone rate cut or a nearer-term technical rebound mean the Euro's rally against the Dollar may be close to an end. On Monday, the government of French President Nicolas Sarkozy repeated its complaints that the Euro's strength was eroding the competitiveness and productivity of firms.
Also on Tuesday, the Bank of International Settlements released a report showing daily Global Forex turnover rose to $3.2 trillion per day in 2007 from $1.9 trillion in 2004. The report also showed that the number of transactions involving the US dollar fell to 86% this year from 89% three years ago.