The dollar regained some footing against the euro and sterling after the FOMC announced its decision to lower its benchmark lending rate by 75-basis points to 2.25%. The Fed voted 8-2 in favor of the cut with Board members Fisher and Plosser favoring a less aggressive cut. In the accompanying statement, the Fed reiterated that ¡°financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters¡±. The statement also addressed inflation, saying it expects price pressures to moderate but uncertainty for the outlook has increased. Nonetheless, the Fed added that downside risks to growth remain ¨C committing it to ¡°act in a timely manner as needed to promote sustainable economic growth and price stability¡±. Shortly after the policy announcement, Fed Funds futures were pricing in another 50-basis point reduction at the April meeting to 1.75%.

US equity markets, which rallied sharply ahead of the decision, maintained its gains, with the Nasdaq and S&P both up by more than 3% and the Dow Jones advancing by more than 2.5%. Additionally, investment banks Goldman Sachs and Lehman Brothers both announced better than expected earnings results, albeit at sharp declines from the prior quarter.

Economic reports released earlier in the session included building permits, which posted a sharp 7.8% drop in February from a 1.8% decline a month earlier to 978k units and February housing starts, which fell by 0.6% from 0.8% to 1.065 million units. The producer price index revealed lingering inflationary pressure with core PPI edging up to 0.5% versus 0.4% and up 2.4% from 2.3% a year earlier. The headline PPI number drifted lower to 0.3% versus 1.0% month earlier and falling to 6.4% from 7.4% in the previous year.

GBP Rally fades near 2.0270

The sterling¡¯s rally against the dollar stalled near trendline resistance around 2.0270, potentially forming a right shoulder in a head and shoulders formation on the 4-hourly chart. Price action suggests a move lower back toward the 2-level, with a breach of this neckline paving the way to a possible test of the 1.96-level.

Economic reports from the UK overnight saw inflation figures, with CPI higher to 0.7% reversing a 0.7% decline a month earlier and edging up to 2.5% on an annualized basis from 2.2%. The retail price index (RPI) firmed by 0.8% m/m and 4.1% y/y.