The Dollar halted a sharp sell-off against the Euro and a basket of major currencies on Monday on relief that US manufacturing had not deteriorated as much as expected. However, analysts said it was unlikely the Dollar's recovery would be sustained given a raft of economic data this week that could reinforce fears of a US recession and a steeper Federal Reserve interest rate cut this month. Traders wary of another below-expectations economic report had pushed the Euro earlier to a lifetime peak of 1.5276, but quickly started buying back the dollar when their fears did not materialize.
EurUsd traded 1.5200 at close, up 0.13%, after having hit lifetime peak 1.5276. UsdJpy trade 103.51, down 0.21%, recovering from a previous three-year low of 102.61. EurJpy weakened at 157.34 -0.07% after hitting earlier multi-week lows at 155.94 and EurChf dropped as low as 1.5701, 1Â½-year low, before rebounding 1.5826 +0.15%.
Some traders attributed the Dollar's recovery to remarks by European Central Bank chief Jean-Claude Trichet that Washington backed a strong Dollar. Trichet made the remarks as he entered a meeting of euro zone finance ministers in Brussels. But Analysts said the Dollar's mild recovery was likely to prove temporary, with more new US economic data (particularly non-farm payrolls) still to come this week.
The Institute for Supply Management's index of US national factory activity fell to 48.3 in February from 50.7 in January, slightly above economists' expectations for a reading of 48.0. A figure below 50 indicates contraction. Analysts said the reading meant that an aggressive interest rate cut at the March Fed meeting could not be written off.
Short-term interest rate futures showed about a 75% chance of the Fed lowering its benchmark overnight lending rate by 75bp at its March 18th
meeting. That would further reduce the allure of the Dollar in favor of higher-yielding currencies such as the Euro or Australian and New Zealand Dollars. The benchmark fed funds target rate is currently at 3% after being slashed by 225bp since mid-September. The euro zone's refinancing rate is at 4% with the European Central Bank preoccupied with inflation.