The Dollar Drops to Records Low After the Fed Cut

By Sagiv Perez
01 November 2007

Finotec

 

The dollar fell to a record low against the euro on Wednesday after the Federal Reserve cut its benchmark interest rate by a quarter percentage point and said the pace of U.S. economic growth will slow this year. Even though Fed policymakers said in a statement that inflation risks are now roughly equal to the possibility of slower growth, the weight of negative sentiment on the dollar was enough to lift the euro to an all-time high for the fourth consecutive session. It briefly pushed above the psychologically important $1.45 level. “It will take more than the Fed effectively making statements to change the broader trend of dollar weakness,” said Flavia Cattan-Naslausky, currency strategist with RBS Greenwich Capital in Greenwich, Connecticut “It will need strong data rather than words to squeeze positions,” she wrote in a note.

The Dollar traded around the levels of 1.4485 against the Euro, 115.45 vs. the Yen and 2.0785 against the sterling at 20:38 (GMT).

The Fed’s somewhat benign inflation outlook contrasted with an official estimate that euro zone consumer inflation in October was well above the European Central Bank’s target, increasing the likelihood of higher interest rates there.

“With the housing situation the way it is, the Fed cannot take a chance of getting behind the curve with employment because in a levered situation that could worsen the housing situation,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey. “The dollar at this point probably continues going down.”

The Canadian dollar climbed to a fresh 47-year high as oil prices rose to a record high above $94 a barrel. The Canadian currency was up around 4.8 percent in October, rising for the eighth month out of the last nine. The U.S. dollar fell 0.6 percent to 0.9640 against the Canadian Dollar.

The medium-term outlook for the dollar is largely dependent on expectations about the federal funds rate, which in turn are based on incoming U.S. economic data, and focus in the market quickly shifted to Friday’s October U.S. employment report.