The US dollar unsurprisingly traded lower against the Euro and British Pound, as dismal Consumer Confidence numbers dashed hopes for a worthwhile rebound. Indeed, the greenback had actually traded marginally higher through early London session currency trading, but a further deterioration in economic sentiment left the buck offered through the New York afternoon. Forex speculators have relentlessly sold the downtrodden currency ahead of tomorrow’s critical US Federal Reserve interest rate announcement—reflecting very clear expectations for further interest rate cuts through the medium term.
The euro initially pulled back against the dollar through overnight trade, but a surge in speculative interest pushed the single currency within a single point of all-time highs at $1.4437. That same dollar-bearish sentiment forced the British Pound to fresh 26-year highs of $2.0693 through the day’s forex trade. Currency markets temporarily broke their recent correlation with global equity market; the Japanese Yen fell further against the greenback despite mixed performances in the Nikkei 225 and Dow Jones Industrial Average. The dollar bought 114.76 yen through time of writing—up 0.11 from yesterday’s close.
Conference Board Consumer Confidence numbers added further gloom to domestic economic outlook, as sentiment fell to its worst levels since September, 2005. Consumers grew less optimistic on outlook for the world’s largest economy, cutting back plans for spending and expressing concerns over prospects for hiring through the medium term. Indeed, only 24.1 percent of respondents claimed that Employment remained “Plentiful”—down 1.5 percent from September levels. At the same time, 22.6 percent of those surveyed claims that jobs are currently “Hard to get”.
The results bode poorly for economic outlook and hurt interest rate expectations ahead of tomorrow’s critical FOMC rate announcement. Fed Funds Futures currently price in a 92 percent probability that the Federal Reserve will cut rates by 25 basis points to 4.50 percent—hardly a bullish sign for the downtrodden US dollar. Yet it will be critical to watch whether the Fed follows through and actually signals further monetary policy accommodation through the medium term. Regardless of the outcome, we are likely to see substantial volatility through tomorrow’s currency trade.
Disappointing consumer confidence numbers drove the US dollar lower despite deterioration in global risk sentiment. The Dow Jones Industrial Average fell 29 points to 13,842 as traders grew nervous ahead of tomorrow’s key FOMC rate decision. The highly diversified S&P 500 fell a similar 5 points to 1,536, while the NASDAQ Composite eked out a 5 point gain to 2,822.
US Government Treasury bond yields rose slightly despite aforementioned economic data, and the 2-Year note added 2bp in yield to 3.81 percent. Yet markets remained unmistakably quiet ahead of the highly anticipated Fed rate decision. Fixed income speculators were unwilling to force major volatility ahead of the highly market-moving event.
Written by David Rodríguez, Currency Analyst for DailyFX.com