Treasury - Daily Forex for day 03.12.2006

The dollar slumped to new 20-month lows against the euro and 14-year lows against the British pound after a surprising decline in business activity in U.S. Midwest raised possibility of an interest rate cut. Chicago Purchasing Managers' Index posted contraction in November for the first time in three and a half years, falling to 49.9 from October's 53.5. Economists had forecast a rise to 54. Moreover, new claims for unemployment benefits in the U.S. unexpectedly shot higher last week. By contrast, the European Central Bank is broadly expected to raise rates to 3.50% next week.

The Czech central bank left interest rates unchanged, as expected, on Thursday and signalled the next hike will be delayed due to a sharp decline in inflation. CNB Governor Tuma's comments also sounded dovish, saying the bank might lower its inflation forecasts in January if inflation remains low and the crown holds its recent gains. The crown ignored the central bank's decision and the accompanying statement, but soared to a fresh historic high of 27.820 to the euro in overnight trade.