LONDON (AFX) - The euro forged higher, breaking through the 0.93 usd level, on follow-through interest after the U.S. Conference Board reported yesterday the most severe fall in U.S consumer confidence since the recession in 1990, dealers said.
The data underscored the view that the U.S. Federal Open Market Committee will cut interest rates by 50 basis points today, which would bring the Federal Fund rate down to 5.50 pct.
"The market is now (following yesterday's bleak data reading) with certainty expecting a 50 basis point rate cut today," Adam Cole at HSBC said.
Although some analysts have started to speculate that Alan Greenspan, chairman of the FOMC, will press for an even more drastic monetary easing, slashing rates by 75 basis points tonight, Cole believes it is very unlikely.
"To cut rates twice by 50 basis points within one month is certainly enough (Jan 3 and today). The Fed does not want to appear to be panicking," Cole noted.
"If we do get 50 basis points today, the reaction of the dollar will be quite small, as 50 basis points are already discounted," the HSBC analyst said.
According to dealers and analysts alike, the publication of French inflation and unemployment data was considered as a non-event, with dealers holding their breath ahead of the FOMC interest rate announcement.
French producer prices fell 0.8 pct in December from November, but were up 4.7 pct year-on-year. The unemployment rate was unchanged at 9.2 pct in December from November.
Sterling also moved higher against the dollar on the back of a stronger eur/usd and helped by the release of robust consumer confidence data overnight.
"The consumer confidence reading was in very sharp contrast to yesterday's U.S. figures and there are still very few signs that the domestic economy is indeed slowing," Cole said.
UK consumer confidence rose in January according to the latest monthly survey from GfK Great Britain Ltd, carried out on behalf of the European Commission, with the report's headline consumer confidence barometer rising to 5 from -1 the previous month.
"Although the Bank of England is expected to cut rates next week, scope for monetary easing is limited compared to the U.S. and a recovery above 1.47 (stg/usd) over the next few days is on the cards," Michael Klawitter at Westdeutsche Landesbank said in a research publication.