The Dollar Slides Broadly Ahead of the Unemployment Claims Report
Posted on 31. Dec, 2008 by admin in USD Analysis, USD Economic Analysis, USD News
The U.S currency fell yesterday on concern that the economic recession is deepening in the United States after the U.S. consumer confidence report showed a record decline this month. Yesterday’s decline in the Dollar versus the EUR pared the greenback’s advance this year to 3.4%. It was traded near 1.4160 per EUR after falling 1.3% on Tuesday. The U.S. currency also dropped versus the Yen and was quoted at 90.34.
The USD may extend its decline even further on bets the Federal Reserve’s zero target Interest Rate will weigh on demand for the dollar. The Fed cut its benchmark Interest Rate this month to a range of zero to 0.25% for the first time and shifted its focus to debt purchases in order to revive the economy.
According to economists, what’s most important is how monetary policy reacts to the economic weakness, and at this stage, the easing of monetary conditions is more aggressive in the United States which has led to a weaker dollar versus the EUR. The U.S. Interest Rates are close to zero and policymakers have said they are ready to take more unconventional steps of providing liquidity to bolster the deteriorating economy. In contrast, key Interest Rates in the Euro-Zone stand at 2.50%, and officials have been unclear about how much rates will be cut further in the near future.
Meanwhile, tensions in the Middle East have also damaged the USD. The Dollar fell the most in almost two weeks against the EUR after Israel’s assault on the Hamas-controlled Gaza Strip raised concerns that oil exporters will reduce crude supplies to U.S. consumers. Rising oil prices makes it more expensive for those in the U.S. to buy the commodity, especially when its economy is doing poorly. The U.S. economy is in a very bad shape and analysts say that there are worries among investors that it may get even worse. The Dollar is being sold as the mood in the market now is to buy the EUR and sell the Dollar because it appears to be the safest bet.
