LONDON (Thomson Financial) - The theme of broad dollar weakness continued as yesterday's very poor US housing data sparked talk of further interest rate cuts to come from the US Federal Reserve.
Figures showed new home sales in the US slumped by 8.3 pct in August from a year earlier, keeping the euro close to the record highs against the dollar reached yesterday of 1.4189 usd and sparking talk that it could break through the 1.42 usd barrier today.
"Dollar weakness remains a dominant theme after yesterday's far worse than expected US new home sales data suggested once again that we would see further rate cuts from the Fed as the year progresses," said James Hughes, market analyst at CMC Markets.
The dollar did see a degree of profit taking during the overnight session, particularly against the pound, but this is now reversing as European trade gets underway, he said.
Data out this morning showed French producer prices rising well above expectations, exacerbating fears of growing inflationary pressures within the euro zone after yesterday's much stronger-than-expected German inflation data.
Attention will now turn to the euro zone business climate and economic sentiment readings due for release at 9.00 am GMT, with market players looking to see whether the euro will breach the 1.42 usd mark before the end of the quarter today, Hughes said.
Beyond this, however, US data will provide the focus, with Michigan sentiment, Chicago PMI, and personal income and expenditure figures all due for release.
"Once again anything that provides further influence on where the Federal Open Market Committee will take rates, not just through the next quarter but also on into 2008, will be jumped upon by the market and could leave the greenback looking somewhat depleted by the close," Hughes said.
Elsewhere, the pound came under pressure overnight on reports that Northern Rock PLC has taken further funding from the Bank of England.
Steve Pearson at HBOS noted, however, that this was not unexpected and, as long as there is no indication of trouble among other UK banks there should be scope for the UK currency to recover.
"Provided this does not weigh on other UK bank equities today... we look for the negative impact on sterling to be short-lived," he said.
London 0831 GMT Hong Kong 1:00 pm (0500 GMT)
US dollar
yen 115.31 up from 115.13
sfr 1.1707 down from 1.1716
cad 0.9982 down from 1.0009
Euro
usd 1.4167 up from 1.4160
yen 163.43 up from 163.04
sfr 1.6595 up from 1.6593
stg 0.6989 down from 0.7000
Sterling
usd 2.0271 up from 2.0223
yen 233.78 down from 232.85
sfr 2.3735 up from 2.3696
Australian dollar
usd 0.8817 down from 0.8829
stg 0.4351 down from 0.4364
yen 101.70 up from 101.66
New Zealand dollar
usd 0.7559 down from 0.7573
jessica.mortimer@thomson.com
jkm/ak
source: fxstreet
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