The Dollar edged lower versus the Euro on Tuesday as Minutes of the last Federal Reserve meeting showed policy makers felt that a prolonged and severe economic downturn can't be ruled out. It remained steady against the Yen and a basket of currencies on growing views the economic downturn in the United States could spill over to other countries and prompt their central banks to cut interest rates.
Those concerns appeared to be backed by data showing a sharp drop in British home prices, raising the chances the Bank of England will cut interest rates by 50bp on next Thursday. Analysts said traders bought Euro aggressively in the absence of major economic data from both the United States and the Euro-zone, and ahead of central bank meetings on Thursday, also helped put a cap on any dollar drop. Traders also await Friday's meeting of Group of Seven finance ministers and central bankers, where a broad range of proposals aimed at restoring confidence in the battered banking system will likely be discussed.
Latest months aggressive monetary easing by the Fed in a try to support the economy following a severe downturn in the housing sector tilted the yield appeal in the Euro's favor and has been the main driver behind the Dollar's sell-off. Since mid-September, the Fed has lowered its benchmark overnight lending rate by 3% to 2.25%. The European Central Bank has kept its refinancing rate at 4%.
Yesterday, EurUsd was unchanged at 1.5696 after hitting 1.5799 intraday high. UsdJpy was up 0.19% at 102.73. UsdChf went up 0.24% at 1.0158. GbpUsd dropped 1.08% to 1.9670, the biggest dropped since March 19th. Sterling was the biggest loser of the major currencies on Tuesday. EurGbp jumped to a record high of 0.7990 before scaling back to 0.7979 +1.03%.
Members of Fed's policy-setting committee worried at their most recent meeting that the housing and financial market stress could trigger a nasty slide in the economy, even as inflation pushed higher. Analyst said the minutes are relatively dovish on interest rates and bearish on the US economy.
Halifax, Britain's biggest mortgage lender, said UK house prices fell 2.5% in March, the biggest drop since September 1992, and much steeper than the market's forecast of a 0.4% decline.