Thursday, November 16, 2006

Forex news: Dollar Firm after Philly Fed

Forex news

The dollar stays firm after a report showed that manufacturing activity in Philadelphia region grew in line with the expectation. Philadelphia¡¯s manufacturing index came in at 5.1, reversing the negative reading of ¨C0.7 in the prior month. The greenback was trading under 1.28 level versus the euro and above 118 against the yen after the release of the strong manufacturing report. Interest rate futures pricing indicated traders see a 6% chance that the Fed will cut interest rates to 5%, down from around 30% before the release of the data.

Earlier in U.S. session, the dollar weakened across the board as U.S. CPI came in weaker than expected. As a key inflation indicator, CPI unexpectedly fell 0.5% in October. Excluding food and energy costs, core CPI declined from 0.2% to 0.1% in October, lower than the forecast for a 0.2% reading. However, the market expectations for a rate cut by the Fed were kept low as two Fed officials talked down this possibility today. St. Louis Fed President William Poole and Chicago Fed President Michael Moskow today both indicated that some additional firming of policy might be needed to curb the inflation, reducing the expectations for a rate cut in the first quarter next year.

U.S. net foreign security purchases $53.7 billion in September, below the expectation but sufficient to cover the trade deficit. The dollar gained as the market interpreted the number as strong-enough appetite for dollar denominated assets.


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