Euro Powers Past 1.50

The dollar extended its losses further, reaching another record low versus the euro beyond the 1.51-handle to 1.5144 while briefly falling past the 106-level against the yen to 105.97. Continued weakness in US economic reports and further pricing in of additional FOMC rate cuts prompted the renewed selling in the greenback. Fed Chairman Bernanke again gave a somber assessment of the US economy in his semi-annual Congressional testimony raising market expectations for more policy easing in the coming months.Bernanke said the “economic situation has become distinctly less favorable”, citing lingering tight credit conditions and a slowing labor market. He expects the housing market deterioration to continue to weigh on the economic in the coming quarters with risks for growth remaining to the downside. Bernanke said the risks “include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further”. He said the Fed expects inflation to moderate; suggesting overall PCE will “moderate significantly” in 2008 to between 2.1%-2.4%. Chairman Bernanke’s testimony reiterates the Fed’s focus on stimulating growth and highlights a shift inflation data has taken, moving to a secondary role behind data impacting growth. The economic reports released today furthered the case for a 50-basis point rate cut to 2.5% when the FOMC meets in March. Durable goods orders in January plunged by 5.3%, exceeding estimates for a 4.0% drop and sharply reversing from December’s 5.0% increase. The excluding defense durable goods orders also posted a sharp drop, falling by 4.7% versus calls for a 1.2% fall from a 2.7% increase a month earlier. New home sales for January also decline by more than forecasts at 588k units, compared with 604k units previously.