| /30/2008
3:20 PM: EUR/$..1.5616 $/JPY..103.90 GBP/$..1.9880
$/CHF..1.0359 AUD/$..0.9446 $/CAD..1.0058
FOMC Cuts, Outlook Unclear
The dollar was mixed following the FOMC’s
announcement to cut rates by 25-basis points to
2.0%. The Fed reiterated that economic activity
remains weak, while “household and business
spending has been subdued and labor markets have
softened further”. The Fed expects lingering
tight credit conditions and the “deepening
housing contraction” to weigh on growth
over the coming quarters. Nonetheless, the statement
did not give a clear indication of whether the
Fed would continue easing policy over the coming
months. The FOMC said that uncertainty about the
inflation outlook remains high, but does expect
it to moderate in the coming quarters. While it
was unclear from the policy statement, we anticipate
the Fed will leave interest rates unchanged for
the remainder of the year.
Economic data from the US earlier in the session
was better than expected, with the advanced reading
of Q1 GDP unchanged at 0.6% -- beating out calls
for a drop to 0.2%. The Q1 core PCE prices declined
to 2.2% from 2.5%, while GDP sales posted a 0.2%
drop versus a 2.4% increase in the previous quarter.
The April ADP private sector payrolls number also
reported better than forecast, posting a 10k increase,
compared with estimates for a 60k decline and
improving slightly from 8k in March. The April
Chicago PMI survey improved from March, rising
to 48.3 from 48.2.
Pound Recoups Housing-triggered Losses
The sterling recovered from a two-week low against
the dollar in the New York session, bouncing sharply
from 1.9626 to back above the 1.98-level. The
catalyst for the slump was another bout of soft
UK housing data. The April nationwide house price
index declined by more than expected, falling
1.1% versus a 0.6% in the previous month. The
annualized reading also disappointed, with consensus
estimates calling for a flat reading, and instead
declining by 1.0% versus a 1.1% increase.
Cable rebounded above the 1.98-level, with resistance
seen at 1.9850, followed by 1.9880 and 1.99. Additional
ceilings are seen at 1.9930, backed by 1.9960
and 2. Support starts at 1.98, followed by 1.9770
and 1.9740. Subsequent floors are seen at 1.97,
backed by 1.9660 and 1.9630.
BoJ Unchanged
The Bank of Japan left policy unchanged at 0.5%,
while issuing a somber assessment for the economy.
New BoJ Governor Shirakawa said that the economy
is slowing as a result of pricing pressures on
energy and material costs. He added, “The
nation’s economic-growth mechanism, led
by production, earnings and spending, is also
weakening”. The BoJ will likely leave policy
unchanged for the remainder of the year given
the slowing growth outlook.
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