The greenback fell to the lowest level in three years versus the Japanese yen to 103.70 after the release of much weaker-than-expected Chicago PMI which dropped to 44.5 in February, the lowest since December 2001, from 51.5 a month earlier. Figures less than 50 signal a contraction. The core personal consumption expenditures (PCE) price index, the Fed's favored inflation gauge, rose 0.3% in January, in line with market expectations. The weak U.S. economic data added speculation on a bigger Fed interest-rate cut in March. Interest-rate futures showed the chances of a 75 basis-point Fed cut to 2.25% by March 18 have risen to 72%, from 2% a week ago.
Fed Chairman Ben S. Bernanke said on Thursday that the depreciating currency have resulted in ‘some improvement’ in the trade deficit which ‘is a positive’ and may help the U.S. economy. However, Treasury Secretary Henry Paulson reiterated he favors a strong dollar and President George W. Bush said the currency should reflect the economy's ‘fundamentals’.
The single currency rallied to a fresh record high of 1.5240 versus the dollar before retreating to 1.5144 on profit-taking. The British pound rebound traded inside 1.9784-1.9922 range on Friday. The greenback tumbled to a fresh record low of 1.0403 against the Swiss franc.
High-yielding currencies, including Australian dollar and New Zealand dollar fell sharply against the U.S. currency from 0.9487 to 0.9315 and from 0.8170 to 0.7970 respectively on profit-taking together with active cross unwinding especially versus the Japanese yen.
Next week will see the release of German, eurozone and U.K. manufacturing PMI respectively, eurozone HICP, U.S. construction spending and ISM manufacturing on Monday; U.K. PMI construction, eurozone PPI and GDP on Tuesday; German, eurozone and U.K. PMI service respectively, eurozone retail sales, U.S. ADP employment, productivity, labour cost, ISM non-manufacturing, factory orders and Fed's Beige Book on Wednesday; Japan’s leading indicators, German factory orders, U.S. jobless claims and pending home sales on Thursday; German industrial production, unemployment rate average hourly earnings and the closely watched non-farm payrolls on Friday.