Forex Report
The USD Index started the day higher, before falling off following today’s poor consumer confidence data. Also leading the dollar lower were comments from former FED Chief Alan Greenspan in which he mentioned “long-term USD erosion” thanks to the US trade gap. Oct. Interest rate futures show a 92% chance of a 25 BPS cut and an 8% chance of when the FOMC announces rates tomorrow. Cable hit a historical high at 2.0694; EUR/USD is flat at 1.4420; USD/JPY is flat at 114.72 and the USD Index is marginally lower at 76.805.
A 50 BPS cut tomorrow will likely result in a USD sell-off and a 25 BPS cut should also yield some USD selling as well; however, as a 25 BPS is widely expected and may have already been built into the USD. If the FED does not cut rates the USD is likely to rally.
The ECB Axel Weber said the ECB is more focused on price stability as opposed to stability in foreign exchange. Weber believes the ECB needs to raise rates to a “restrictive level” in order to combat upside risks to prices, which include energy and food costs. GBP/EUR is up .2% to 1.4324; EUR/JPY is up .25% to 165.79 and GBP/JPY is up .43% to 237.49.