The dollar was dragged lower in the Tuesday session on the
heels of lackluster US economic reports, plunging to a new
record low versus the euro at 1.4154 and again falling to
parity against the Loonie. We expect the greenback to
remain under pressure over the coming months amid
persistent worries that the US economy may slump into
recession and the increased prospects for additional rate
cuts from the FOMC.
The data released earlier in the session reinforced the
pessimism surrounding the US economy, with consumer
confidence and housing reports pointing toward further
weakness. The Conference Board's consumer confidence index
tumbled to its lowest level in nearly 2-years, at 99.8 for
September down sharply from August at 105.6. The dismal
confidence figure reflects heightened market volatility,
growing uncertainties stemming from the housing market and
worries over the prospects of a US recession. There was
also renewed evidence of the slumping housing market with
existing home sales down 4.3% at 5.49 million units, versus
5.75 million units in July.
Euro Climbs to Record High
The single currency jumped to another fresh all-time high
against the greenback despite a softer than expected
reading from Germany's Ifo sentiment survey. The euro
continues to benefit from fears of further deterioration in
US economic fundamentals, and now sets its sights on the
next key psychological resistance at the 1.42-level.
Moreover, the outlook for interest rates between the Fed
and the ECB also remains favorable for the euro, with the
FOMC likely to further ease policy while the ECB is seen
tightening by at least 25-basis points before the end of
the year.
ECB Board member Liebscher reinforced the economic strength
of the Eurozone. Despite the prevailing downside risks,
Liebscher said the Eurozone economy is in a good state and
that the economic expansion remains dynamic. Meanwhile, the
ECB's Garganas sounded a hawkish tone, suggesting that
"upside risks to price inflation dominate any effects
stemming from the appreciation of the euro". He deems the
main drivers of Eurozone inflation are domestic, but added
that it was appropriate to await more information prior to
taking additional action. Garganas also added that the
primary impact of recent market turbulence would be higher
risk perception and would otherwise not affect the main
scenario.
Germany's Ifo sentiment survey was lower than forecast,
with the business climate index falling to 104.2, compared
with calls for 105 and down from 105.8 a month earlier. The
current conditions component slipped to 109.9, versus
estimates for a smaller decline to 111.0 from 111.5, while
the expectations index dropped to 98.7 and down from 100.4.
The Ifo said that the initial signs of "brake to growth"
emerging and that the retail sector climate has
deteriorated considerably. However, it added there was no
strong impact on export expectations from a stronger euro.
The Ifo's chief economist Nerb believes that the German
business climate has been impacted by the market turbulence
and foresees a softening in the Germany economic rebound
rather than an end.
Eurozone economic data over the coming sessions will reveal
further clues into the state of the region's economy. The
reports will include Eurozone money supply, Germany's
September labor report, Eurozone sentiment surveys, and the
September Eurozone HICP.
- by Korman Tam
Posts
