The greenback extended last week’s decline against the Japanese yen and euro on speculation U.S. interest rates will aggressively cut interest rates by 50 basis points later this month after Bernanke’s dovish comments. A 50-basis point cut would put the benchmark U.S. rate below the key euro-zone interest rate for the first time in more than three years.
The single currency rallied from 1.4775 to 1.4915 against the dollar on Monday before retreating on position adjustments below the record high of 1.4968 made last year together with the rally in U.S. stocks. U.S. currency weakened to 107.37 (just above last year’s low at 107.22) against the Japanese yen and then rebounded to 108.33 on short-covering.
Cable declined from 1.9848 to 1.9556 on Monday although a report showed U.K. factories increased prices at the fastest annual pace since 1991 in December. Euro rallied from 0.7546 to a record high of 0.7608 against the sterling. Investors sold sterling on speculation that the Bank of England will cut interest rates from 5.5% to 4.75% by September. The September 90-day sterling interest-rate futures yielded at 4.74% on Monday, down from 5% on Dec. 31.
The greenback fell to a record low of 1.0886 versus Swiss francs before paring some of those losses on dollar’s rebound against major currencies on the rally in U.S. stocks due to strong results from IBM. Dow Jones Industrial average rose 171.85 points or 1.36%. The Standard & Poor’s 500 Index was up 15.23 points or 1.09%. The Nasdaq Composite Index was up 38.36 points or 1.57%.
Australian dollar and New Zealand dollar rose against U.S. currency from 0.8876 to 0.9004 and from 0.7796 to 0.7915 due to the record-high gold prices.
Tuesday will see the release of U.K. RICS house prices, CPI and RPI, German ZEW index, U.S. PPI, retail sales, Empire state manufacturing and business inventories. Investors are also focusing on the Citigroup’s fourth-quarter earnings. The bank could write down as much as $24 billion and cut up to 24,000 jobs.