The Dollar fell to a record low against the Euro and a basket of currencies on Thursday, pressured by soft US economic data and sluggish corporate earnings that bolstered chances of an interest rate cut.
Bank of America's poor third-quarter earnings on the back of mounting credit losses took their toll on the currency market early as it fanned concerns that the global liquidity crunch is far from over. It also strengthened the case for a cut in the target federal funds rate from the current 4.75% to avert a sharper slowdown.
US short-term rate futures on Thursday showed a 68% implied chance of a rate cut at the Fed's next monetary policy meeting on Oct. 30-31,
from Monday, expectations around 35%.
The Philadelphia Federal Reserve business activity survey was the latest report to provide evidence of a slumping US economy. Earlier in the session, higher-than-expected initial weekly US jobless claims also gave the dollar a negative tone. Both reports followed dire US housing data on Wednesday, suggesting the slowdown is deeper than many initially thought.
Yesterday, EurUsd was up 0.59% at 1.4291, after climbing to a lifetime peak at 1.4309 during New York session. The Yen gained as investors became more risk-averse and unwound carry trades in which they buy high-yielding currencies funded by borrowing low-yielder such as the Yen. This was the Yen's fourth straight day of gains against the Dollar; UsdJpy was 0.71% weaker at 115.55 near a 115.28 two-week low. The EurJpy fell 0.11% to 165.13. UsdChf dropped 0.8% to 1.1700 after touching intraday low 1.1663 two-week low. GbpUsd went up to 2.0512 high (three-month high) before closing up 0.3% to 2.0449. GbpJpy fell 0.4% to 236.30 in a third down session.
Forex investors are also cautious ahead of a Group of Seven meeting over the weekend. European businesses on Thursday urged France, Germany, and Italy to push for a clear commitment from the G7 group of rich industrial nations against further Euro appreciation. But few analysts were willing to bet any action will be taken to address the Euro's surge against the dollar. Analysts added that situation could improve in coming moths as the currency volatility (in the Euro) has fallen significantly from the spikes seen in August. On the US side, markets believe that Dollar weakness will not be mentioned in the statement at all given its limited impact on inflation. Analysts said the G7's focus is more likely to be on the tightly controlled Chinese Yuan currency.