The USD was up against the EUR and held steady against its other European rivals early Thursday in New York as the Bank of England cut interest rates. The BoE’s Monetary Policy Committee cut its key interest rate to 5.5% from 5.75% yesterday, the first cut in 2 years, as evidences mounted that the economy is slowing. Overall, the USD remained relatively unchanged after the U.S. jobless claims fell. President Bush is set to unveil plans to help struggling homeowners to avoid foreclosure and this move is expected to help circumvent a U.S. economic recession. However the U.S. still faces a deteriorating housing market for at least another 6 months. Despite the greenbacks’ strong performance over the past 2 days, however, analysts cautioned against jumping on a dollar-recovery bandwagon too soon. There are still a lot of reasons for the EUR/USD to hold above 1.4500. Financial markets remain susceptible to bad news flow and rate differentials are unlikely to move substantially in the dollar’s favor too quickly.
Today, traders may expect USD moves to be choppy as the Nonfarm Employment Change figure is expected to be released. This is indeed one of the most market-moving indicators, and with the FOMC rate decision and policy statement looming on the horizon next week, equity markets could see wild price action. The change in the U.S. Non-Farm Payrolls for the month of November is anticipated to rise to 75K, down from 166K in October. However, following last Wednesdays’ surprising jump in the ADP Nonfarm Employment report, the Nonfarm Employment Change figure is difficult to predict. A weaker-than-expected reading could send EUR/USD towards 1.4750 once again, as traders increasingly bet that the FOMC will indeed cut rates next week. On the other hand, a surprisingly strong NFP report could help EUR/USD continue its descent towards 1.4350.
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