The Dollar fell to record lows against the Euro and a basket of major currencies on Friday after economic data supported views the Federal Reserve would cut interest rates again to shore up sluggish growth. More monetary easing, on top of a half a percentage point reduction in the federal funds rate two weeks ago to 4.75%, would further erode the appeal of dollar-denominated assets.
Forex market sentiment on the Dollar remains very bearish. As long as we keep getting weak US economic data and as the market builds short-Dollar positions ahead of another rate cut by the Fed next month, the EurUsd is bound to test the 1.4500 level.
Friday news of a muted rise in a monthly measure of Core Consumer Prices, which excludes volatile food and energy items, lifted the EurUsd to an all-time high of 1.4278. It was last trading 0.82% higher at 1.4273.
The mild rise in Consumer Prices may be reassuring to Fed policy-makers, who have been closely monitoring the economy for any indication that inflation pressures might be building. The Euro has gained 4.3% versus Dollar in September and 4.9% during the quarter, the largest increase since the second quarter of 2006.
The third quarter has been focus to the Yen, which has benefited as investors unwound risky trades in the wake of a growing liquidity crisis that began in the US sub-prime mortgage market. The Dollar has dropped 6.6% against the Yen in the last three months, the biggest quarterly decline since the fourth quarter of 2004. UsdJpy fell 0.64% to 114.80 on Friday. Against the Swiss franc, the Dollar was also down 0.81% to 1.1633. UsdCad dropped 0.78% to 0.9937, leaving parity further behind.
The market was little moved by separate reports showing a modest rise in the pace of business activity in the US Midwest region in August, while Consumer Sentiment was unchanged in late September from August. Forex analysts said market focus has shifted to speeches by various Fed officials for clues on the size of next month's expected interest rate cut.