by Korman Tam
The greenback edged up higher against the majors in early
US trading, firming to 1.4017 versus the euro and 117.48
against the yen before easing in the afternoon ahead of the
FOMC monetary policy minutes. The currency market remains
quiet as traders returned to their desks following the
holiday to a dearth of fresh economic news.
The dollar continues to benefit from last week's stronger
than expected jobs data, which tempered expectations for
further aggressive rate cuts from the FOMC. Nonetheless, we
still expect the Fed to cut rates by 25-basis points at the
end of October.
The minutes of the FOMC meeting revealed a unanimous
decision to cut rates by 50-basis points to 4.75% due to
the extremely weak conditions of the housing market,
tighter financial conditions and their potential impact on
the economy. Members expressed concern that a weaker
economy would further exacerbate tightening credit
conditions and reinforce the slowdown. Although members
remained concerned about the upside inflation risks, the
Fed is more confident a decline in inflation would be
sustained. Also, the Fed sees further slowing of employment
likely but labor markets should remain fairly tight.
St Louis Fed President William Poole reinforced sentiment
from Friday's payrolls report, saying the jobs data does
not suggest the downside risks many foresee are
materializing. He expects the housing market to remain weak
for several more quarters and not stabilize until well into
2008. Poole remained uncertain over the duration for market
turmoil, saying there was a substantial way to go. He added
that the Fed has a responsibility to help maintain normal
market processes but has neither the power nor the desire
to bail out bad investments.
The US economic calendar remains light until the end of the
week, with the reports to include TICS, trade balance, PPI,
retail sales, and the University of Michigan consumer
sentiment. We expect the dollar to remain within range this
week, with traders likely to buy up the euro, sterling, and
Aussie on dips. Markets will also focus on data released
from the Eurozone, which will see GDP and industrial
production.
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