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Daily Analysis

Dollar plumbs record low as Fed rate cut awaited

Mon, Oct 29 2007, 09:55 GMT
by Benny Menashe

Finotec Group Inc.

The dollar slid to a record low against a basket of major currencies on Monday, extending its broad sell-off on expectations that the Federal Reserve will trim interest rates this week and possibly again later this year. the Dollar is trading around the levels of 1.4408 against the Euro,around the levels of 114.24 against tha Yen and around the levels of 2.0565 against the sterling.

The Euro vaulted to a record high of $1.4426 on trading platform EBS, the highest since its launch in 1999, before retreating to $1.4420, up 0.2 percent from late U.S. trade. The Fed is widely seen cutting rates by a quarter-point to 4.5 percent on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market's downturn.

The likelihood of lower U.S. benchmark rates sent investors away from U.S. assets and into other currencies, particularly European currencies and those of commodity producers such as the Australian and Canadian dollars. "The dollar continues to be on a downward trend against all major currencies," said, a market strategist at Finotec Analysis Team.

The dollar's woes helped drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high near $798 an ounce boosting the Australian dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.

The dollar was little changed near 114.20 yen but held off a six-week low of 113.25 yen as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in the risky carry trade.

Trading activity was relatively subdued with few major items of data or speakers on Monday before this week's array of events, which also feature a Bank of Japan policy meeting and its twice-yearly report on the economic and price outlook on Wednesday.
The BOJ is widely expected to keep rates on hold at 0.5 percent in the coming months as it waits to see more evidence of the U.S. economy's health and gauge the potential impact on Japan. As the prospect of more monetary easing by the Fed has boosted stock markets around the world, some investors have shifted back to the carry trade.

Market players awaited this week's U.S. economic reports and comments from the Fed that may give hints about the central bank's thinking on monetary policy to see if the dollar will extend its slide or stage a rebound.

U.S. economic data due this week includes snapshots on manufacturing and employment that will show the extent to which growth is suffering and shed light on how much further the Fed may lower rates.

Today's Economic Events

Published on  Mon, Oct 29 2007, 11:34 GMT

Archive

• Yen surges as Carry Trades unwind
  Published On Fri, Sep 5 2008, 11:02 GMT
• ISM Non-manufacturing in the U.S probably shrank in August
  Published On Thu, Sep 4 2008, 10:02 GMT
• Cable lowest in 2 1/2 years
  Published On Wed, Sep 3 2008, 10:21 GMT
• Dollar rises against the Euro and the sterling as oil falls
  Published On Tue, Sep 2 2008, 10:31 GMT
• Yen soars against Euro and Sterling
  Published On Mon, Sep 1 2008, 11:15 GMT

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