Currency Weekly Overview
Did anyone get the plate number of the truck that ran over the U.S Dollar? Current price levels in the forex market border on the obscene after Ben Bernanke and friends voted 9 to 1 to cut interest lending rates by another quarter point this week. The Euro surged through 1.4500 on the news, the Dollar/Canada dropped to .9450, the Pound/Dollar spiked to 2.0825, and the Dollar/Swissie dipped to 115.55.
Keep in mind, the Loonie hasn’t been this high against the buck since 1960, and the British Pound is trading at levels not seen since 1981! If we turn to the Dollar Index contract – which has been trading in New York since 1973 – at a base of 100, an all-time new low was seen at 76.43. This represents an almost 25% loss in value for the Dollar against the combination of the six major currencies – the Euro, Yen, Krona, Loonie, Pound and Swiss.
The decision to cut interest rates happened on the same day that the U.S. Bureau of Labor Statistics released a surprisingly strong 3rd quarter Gross Domestic Product report. GDP was forecasted to drop to 3.0% from the previous quarter’s report of 3.8, but actually came in higher at 3.9%, signaling economic growth. This bright spot may have factored into the Fed’s accompanying statement indicating that this cut might be the final action needed to stimulate the economy for the remainder of 2007.
Non-farm payrolls may come in above estimates, judging by Thursday’s ADP private sector employment report showing a 106,000 gain in jobs created for October. The median expectation this morning is for unemployment to remain steady at 4.7% and non-farm payrolls to decline from 110,000 to around 80,000 representing a cool down in the workforce. The non-farm payroll number represents roughly 80% of workers producing the entire U.S. gross domestic product. The Bureau of Labor Statistics releases this information on the first Friday of every month, providing FOMC policy-makers and economists with valuable insight regarding the current state of economic activity and a guide for future predictions of economic growth.
Those traders bearish on the Dollar may need to take pause ahead of the release at 8:30 AM Eastern, as we could see a bounce in the market should the report come in above expectations. Also due for release this morning are September Factory and Durable Goods Orders. Factory orders are forecast to come in minus .5% from the previous reading of minus 3.3%.
Currently, EUR/USD trades 1.4475, Pound/Dollar trades 2.0820, and Dollar/Swiss trades 1.1540.
Heather Mitchell, Currency Analyst
