Treasury - Daily Forex for day 01.11.2007

The dollar slumped to a fresh record low against the euro, touching the psychologically important $1.45 level, and also hit a new low against a basket of major currencies after the Federal Reserve cut its key fed funds rate by 25bps to 4.50%. Following the widely expected cut, the Fed's statement showed the bank expected U.S. economic growth to slow this year, while inflation outlook was somewhat benign. This contrasted with an earlier report showing euro zone CPI shot up well above expectations, jumping to 2.6% yoy in October from 2.1% yoy in the previous month. The report raised the likelihood of an interest rate hike by the European Central Bank. A sharp decline in U.S. business confidence indicated by the much weaker-than-expected Chicago Purchasing Managers' Index also contributed to the dollar's fall. The report showing the U.S. economy grew at a stronger-than-expected pace in Q3 provided only a short-term boost to the dollar. The first estimate of the Commerce Department pointed to a 3.9% GDP expansion in Q3, while the market had forecast a 3% growth.

Tracking the development of other CE currencies, the crown weakened versus the euro on Wednesday morning. It fell even to the weaker side of the 27.0 EUR/CZK level, but erased most of these losses later in the session.