The Dollar fell to a record low against the Euro on Tuesday for the third consecutive session as the market looked ahead to the outcome of a Federal Reserve meeting with most expecting an interest rate cut.
Dealers seemed intent on heading into the meeting with hefty bets against the Dollar, forecasting the Fed would signal that additional policy easing might be needed to stave off an economic recession. Some analysts warned that in the near term, investors should be wary of a cloudy outlook in the Fed's post-meeting statement, which would leave the US central bank's options open as to how to react to the economic situation.
While the chances of a 0.50 rate cut by the Fed on Wednesday have largely evaporated in the last few weeks, the futures market still reflects expectations for about 40 basis points of policy easing by the end of January 2008. A sliver of doubt that the Fed would reduce its benchmark interest rate for the second meeting in a row entered the market after an article in The Wall Street Journal earlier on Tuesday made the case that policy easing this week is not a sure thing. However, expectations seemed to gel after a US consumer confidence index hit its lowest level in two years, causing the Dollar to cut its small gains on the day.
The EurUsd rose to a fresh record high of 1.4441 before settling at 1.4439. The Euro has risen around 10 cents since mid-August, when a crisis in the US sub-prime mortgage market began to spread to other areas of the economy. UsdChf fell to the lowest in 2-1/2 years, at 1.1575 down 0.57% yesterday. GbpUsd rose to a 26-year high of 2.0703 before backtracking to 2.0679, up 0.35% on the day.
The overall negative trend in the Dollar is intact heading into the Fed meeting, analysts said. Though commodity-related currencies have been the biggest gainers on the dollar this year, they took a breather on Tuesday as oil prices fell from record high. UsdCad was flat at 0.9536 after touching a 47-year low of 0.9514 yesterday.