Dollar resumes decline against European majors on increased speculation for further rate cut from Fed in Dec. EUR/USD made new record high of 1.4737, GBP/USD surges to new 26 years high of 2.1144. USD/CHF also dips to 1.1208, lowest since 1.1100 in 95. Chance of a rate cut in Dec, as implied by interest rate futures, jumped sharply from 70% to 90% after Bernanke’s Testimony before Joint Economic Committee yesterday. Growth is expected to ‘slow noticeably’ in Q4 and remains sluggish in Q1 even though recent data suggests the economy is still ‘resilient’. Risk is on the downside, if housing recession spills into consumer spending and business investment. And “a sharp increase in foreclosed properties for sale could also weaken the already struggling housing market and thus, potentially, the broader economy.” Meanwhile inflation outlook is “subject to important upside risks” including rising energy and commodity prices ad weakness in dollar. After all, even though the testimony looked somewhat balanced on the surface, more emphasis was placed on the downside risk of growth in the details.
Trade balance data from UK, US and Canada will be the main focus for the rest of today. UK Visible trade deficit is expected to widen slightly from -6.85b to -6.9b in Sep. Canada trade surplus is expected to shrink slightly from 4.07b to 3.9b in Sep. Meanwhile US trade deficit is expected to widen slightly from -57.6b to -58b in Sep. Import price is expected to rise 1.1% in OCt while export price is expected to rise 0.3%. U of Michigan consumer sentiment is expected to deteriorate further to 80.0 in Nov.