The Dollar fell to record lows against the Euro and a basket of currencies for a fourth straight day on Friday as yet another set of weak US economic data left traders betting on an aggressive Federal Reserve rate cut next month. A sharp decline in global and US stocks knocked the Dollar to an all-time low against the Swiss franc and pushed it to a three-year trough against the Japanese Yen. However, short-covering ahead of the weekend halted the Dollar's slide against the Euro.
Data showed US consumer sentiment dropped to a 16-year low in February, while business activity in the country's Midwest contracted sharply, raising red flags for investors wary of a recession in the world's largest economy. The core PCI price index is the Fed's favored inflation gauge. It rose 0.3% in January, in line with market expectations. Economic woes coupled with Fed Chairman Ben Bernanke's warning about the health of some small US banks on Thursday weighed on risk appetite to the benefit of low-yielding currencies like the Yen and Swiss franc. Low-yielding currencies such as the Yen and the Swiss franc tend to attract flows during periods of uncertainty as the low interest rates reflect the capital surplus of their respective countries.
Short-term interest rate futures were showing a 70% chance of the Fed lowering its benchmark overnight lending rate by 75bp at the March 18th monetary policy meeting. The federal funds rate is currently at 3% after being cut by 225bp since mid-September.
EurUsd set a record high 1.5239 before surrendering gains to trade down 0.08% at 1.5180. UsdChf fell to a historic low of 1.0403, posting its biggest weekly decline since December 2000. UsdJpy touched a three-year low at 103.69.