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| Federal Reserve headquarters, Washington DC. |
The US dollar fell to a record low of $1.50 against the euro Wednesday, on speculation that Federal Reserve Chairman Ben Bernanke will signal later today that the US central bank is ready to cut interest rates again, to underpin the flagging US economy.
The dollar fell against 13 of the 16 most-active global currencies in advance of Bernanke's testimony today to the US Congress.
The dollar fell to $1.5047 against the euro - a record low against the European currency, which was launched in 1999. It was trading at $1.4998 at 6:20 am Dublin time from $1.4974 in late New York yesterday. It also fell to 107.08 yen from 107.28 yen.
The greenback fell 0.6% to NT$31.005 - Taiwan's currency and 0.5% against the South African rand. On Tuesday, the dollar fell to a 23-year low of NZ$81.85 cents against the New Zealand dollar.
The Federal funds rate was cut to 3% at the end of January while the European Central Bank's benchmark rate has remained at 4% since June 2007.
Bernanke's deputy said on Tuesday that while recent inflation news has been "disappointing," his principal concern remains the nation's deteriorating economy and worsening credit squeeze.
A speech by Fed Vice Chairman Donald Kohn suggests that a spike in inflation news won't prevent the Fed from cutting interest rates again next month, as is widely expected, if not sooner.
Markets expect the Fed to lower its short-term interest rate target to 2.5% from 3% at its next policy meeting on March 18th.
Kohn said whether the Fed has done enough to respond to the weak economic outlook, as well as far worse but less likely scenarios, "is a question [I] will be weighing carefully over coming months."
His speech was not optimistic about the economy's near-term prospects. "Easier monetary policy will not forestall a period of economic weakness in the near term," he said, hinting that if a recession has already begun or is about to begin, as many economists say, the Fed can't do anything about it.
Later Wednesday in the US, a report is expected to show a drop in new home sales and Tuesday's economic news was also grim.
The US producer-price index rose 1.0% in January, the Labor Department said on Tuesday. The core index, which excludes food and energy items, rose 0.4%. The rise was more than double what analysts had forecast.
In other data, the S&P/Case Schiller home price index showed home prices fell at an annual rate of 8.9% in fourth quarter of 2007 - the biggest drop in 20 years. Also, the Conference Board said its consumer- confidence index fell sharply in February to 75.0 from a revised 87.3 in January.
RealtyTrac, which monitors home foreclosures, said that although they were up 57% from January 2007 and 8% from December, the January foreclosure numbers do not appear to represent the massive wave of foreclosures that is expected to hit sometime soon thanks to the rash of risky loans given to borrowers as late as just last year.
RealtyTrac said it's too early too tell if the relatively meek January numbers mean more distressed homeowners are staving off foreclosure thanks to increasingly pro-active lenders and government intervention, or if they just represent the first few raindrops of what will prove to be a violent thunderstorm.
Meanwhile in Europe, the pressure on the European Central Bank to cut its benchmark rate, has eased.
On Tuesday, the closely watched Ifo Business Climate Index for Germany showed a slight rise in February and an economic forecast for the Eurozone put expected 2008 growth at 1.8%.
Last Friday, the PMI (Purchasing Managers' Index) for the Eurozone, showed a recovery in service activity in February.
Bloomberg says that the odds of the ECB lowering borrowing costs fell yesterday, with the implied yield on the Euribor futures contract for June rising 4 basis points to 4.15%.
