USD Slumps on Dismal Data

By Korman Tam of forexnews.com

The dollar fell across the board, slumping to a two-week low against the euro to 1.4837 and relinquishing the 1.96-level versus the sterling. The catalyst for the greenback’s losses was another round of weak US data reigniting fears that the economy is headed into recession.

The Philadelphia Fed manufacturing index plunged to its lowest level since 2001 to minus 24 in February deteriorating further from the minus 20.9 reading a month earlier and defying expectations for an improvement to minus 11. The January leading economic indicators index was in line with expectations, down 0.1% versus a 0.2% decline from the previous month. Meanwhile, weekly jobless claims came in at 349k, versus a revised 358k from the previous week.

Given the current scenario of deteriorating fundamentals and lingering inflationary pressure, we expect the Fed to maintain its focus on growth with inflation reports taking a secondary role. Yesterday’s stronger than expected consumer price index reports failed to deter markets from pricing in further aggressive rate cuts by the FOMC. We look for the Fed to cut rates by 50-basis points when they meet next month, taking their benchmark lending down to 2.5%.