The greenback fell to a three-year low of 102.60 against the Japanese yen and euro rallied to a fresh record high of 1.5276 versus the dollar on speculation the slumping U.S. economy will cause banks to report more losses from the collapse of the subprime-mortgage market, however, the U.S. currency rebounded broadly on position adjustments in U.S. morning after the release of slightly better-than-expected ISM. The Institute for Supply Management said its manufacturing index declined to 48.3 in February from 50.7 in January, signaling a contraction.
Business confidence in Germany, Europe's biggest economy, rose for a second month in February, adding to speculation that the ECB would leave rates at a six-year high of 4.0% on Thursday. However, the single currency retreated strongly from 1.5276 to 1.5158 on profit-taking as Luxembourg Prime and Finance Minister Jean-Claude Juncker said he is ‘starting to become increasingly concerned and vigilant’ on the euro. However, Dutch Finance Minister Wouter Bos said the euro is ‘reflecting underlying economic strength’ and said he is not concerned about the strength of the euro.
Interest-rate futures indicated a 76% likelihood the Fed will lower the main rate by 75 basis points to 2.25% at its March 18 meeting. U.S. Treasury Secretary Henry Paulson said that financial institutions should seize the opportunity to raise fresh capital if they think they need it for both their own and the sake of the wider economy. The British pound rose briefly to 1.9940 and then retreated strongly to 1.9810 on dollar’s broad-based rebound. Dollar bounced from a 3-year low of 102.60 to 103.71 and then traded sideways in U.S. session on cross trading. The greenback also rebounded from 1.0309 to 1.0457 against the Swiss franc on cross unwinding in chf especially versus the euro. Eur/chf rose from 1.5700 to 1.5860.
The greenback rebounded against the Canadian dollar from 0.9828 to 0.9935 after the release of much weaker-than-expected Canadian GDP data. Canada’s annualized GDP for the last quarter of 2007 rose by 0.8% versus the forecast of an increase of 1.1% and 2.9% in the third quarter. Canada’s GDP in December decreased by 0.7% versus the expectation of a decline of 0.2%.
Tuesday will see the release of U.K. PMI construction, eurozone PPI and GDP but there is no major U.S. economic data to be released. The Bank of Canada is expected to lower interest rates by 50 basis points to 3.50% on Tuesday from 4.0%.