US Dollar - Dropping to New Lows?

Thursday, January 1, 2009

The US Dollar declined for the second week in a row as the economic data produced nothing but drab news. CPI continued to press higher with core readings reaching 2.5% while headline prices clocked in at 4.3% as rise in commodities showed that inflation is very much alive. But price stability is not a concern for the Fed at the moment.

US monetary policy is solely focused on reviving growth. This week horrendous reading in the Philly Fed index which reached a 7 year low, was a loud and clear signal that demand is contracting rapidly. Add to that the fact the weekly jobless claims have averaged well above 350K for the past four weeks and it becomes easy to see that markets now expect another 50bp cut in March.

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