The dollar sold off heavily overnight in concert with a plunge in global equities ¨C with the currency hitting another fresh all-time low against the euro at 1.5904 and a 12-year low versus the yen at 95.76. The Federal Reserve announced new measures to provide liquidity to the financial markets and cut its discount window by 25-basis points to 3.25%. Additionally, the Fed extended the duration of discount window loans from 30-days to 90-days. The moves follow emergency measures in conjunction with JP Morgan to provide liquidity to distressed bank Bear Stearns, which received an offer of $2 per share over the weekend from JP Morgan. Heightening fears that the financial contagion will extend to other banks, particularly Lehman Brothers, continues to weight on the dollar. Further, the UK¡¯s Daily Telegraph expects Goldman Sachs to announce a $3 billion write-off when it releases its quarterly earnings report on Tuesday.

The FOMC will announce the results of its monetary policy meeting tomorrow at 2:15 PM. Although consensus estimates see the Fed easing rates by 50-basis points to 2.5%, more aggressive views hint at the possibility for a 75 to 100 basis point reduction. The FOMC is expected to continue providing easy liquidity in an effort to stabilize the ailing economy. The accompanying statement will be closely scrutinized for the Fed¡¯s assessment of the current state of the financial market as well as additional pledge to provide liquidity to prop up additional distressed financial institutions if they materialize.

US economic reports released today saw the current account deficit in the fourth quarter shrink to $172.9 billion from $178.4 billion deficit in the previous quarter. The NY Fed manufacturing survey deteriorated further in March to minus 22.23, compared with a minus 11.72 reading from February. Industrial production in February posted a 0.5% decline versus an increase of 0.1% a month earlier, while capacity utilization was lower at 80.9% from 81.5%.

In addition to the FOMC policy announcement on Tuesday, traders will also look to February building permits, housing starts, and PPI. Building permits are forecasted to drop to 1.020 million units in February versus 1.061 million units a month earlier, while housing starts are estimated to fall 990k units down from 1.012 million units from January. Meanwhile, producer prices are seen drifting to 0.3% from 1.0% and the core PPI figure is seen drifting to 0.2% from 0.4%.