The U.S. dollar continued its fall against the Euro and British pound overnight as investors increased their appetite for risk as both European and Asian equities traded higher. The dollar is also trading significantly lower against commodity-based currencies over the past 24 hours as commodity prices soared. The price gold is now trading at all-time high, while the price of oil continues to trade near its yearly-highs. Today’s the economic docket reinforced a weakening outlook for employment as private payrolls fell 203K in October. At 10a.m., service-based activity is expected to expand for the second consecutive month, with the ISM index anticipated to rise to 51.5 from 50.9 in September. However, the dollar will likely trade in choppy ranges ahead of the Fed’s interest rate decision at 2:15 p.m. It is widely expected that the central bank will hold interest rates at record lows, but commentary following the meeting is likely to move currencies as investors weigh the outlook for future policy.
The Euro gained against the dollar in overnight trading as risk assumption re-entered the market. The Euro could continue to gain during the U.S. trading session as U.S. stock futures are pointed towards a higher open. Tomorrow, the European Central Bank is anticipated to hold the key rate at 1.00% and is likely to raise its outlook for future growth as the economy emerges from the recession. However, many investors speculate the Governing Council will hold a neutral policy throughout the remainder of the year as the central bank sees a risk for a protracted recovery. Today the final services PMI reading for Germany weakened to 50.7 from an initial forecast of 50.9, with the gauge for the Euro-Zone increasing to 52.6 from 52.3. Also, producer prices fell 0.4% in September after rising 0.5% in the previous month. The lack of inflationary pressures in the Euro-zone will likely reinforce investor’s speculation that the ECB will continue to hold a neutral policy stance going into 2010.
The Japanese yen fell across the board as increased risk appetite pushed the currency lower. Higher Asian and European stocks have shifted flows from the safe haven currency into higher yielding assets, including the Euro and pound. The yen could experience more weakness during our trading session as U.S. equity futures are also pointed higher.
The British pound continued to gain against the U.S. dollar, retracing its previous months losses versus the greenback. On Thursday, the Bank of England is widely expected to hold interest rates at 0.25% and will likely maintain its asset purchase program to encourage recovery. However, any indication that the central bank will add to its already extensive quantitative easing program will weigh on the pound. Meanwhile, Nationwide consumer confidence survey held at 72 for the second consecutive month in October, which is the highest since April 2008. Also, service-based activity expanded for the sixth month in October, with the PMI reading jumping to 56.9 from 55.3 in the previous month to mark the highest level since September 2007. The data reinforces a positive long-term outlook for the U.K., but expect the pound to continue to trade with the prevailing risk sentiment, gaining as stock push higher.
