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Top Stories

• FOMC rate cut spurs further weakness in the dollar
• Japanese officials under pressure to react to FOMC move as yen strengthens
• OPEC looking to cut 2M/day by Jan 1st
• Equity markets muted in wake of Fed move
• OIl runs higher to $47/bbl on OPEC news
• Gold above $850/oz

Overnight Eco

• EUR German Final CPI -0.5% as expected
• EUR Italian Trade Balance -0.7B
• GBP Claimant Count Change skyrockets to 75.7K from 45.0K eyed
• GBP MPC Meeting Minutes 0-9 but bit hawkish on pace of cuts
• GBP Average Earnings Index 3.3% vs. 3.2% forecast
• GBP Unemployment Rate 6.0% as expeceted
• EUR CPI 2.1%

Event Risk on Tap

• NZD Westpac Consumer Sentiment
• CAD Wholesale Sales
• USD Current Account expected at -180.0B

Price Action

• USD/JPY plumbs the lower depth of 8800 level as Fed cut impacts
• AUD/USD runs to 7000 as yield continues to dominate trade
• GBP/USD weakens to 1.5500 as unemployment skyrockets
• EUR/USD higher to 1.4100 hitting 2 month highs after FOMC

The anti-dollar rally continued in Asian and early European trade today in the  aftermath of yesterdays surprising -75bp cut by the Federal Reserve, but the pace of gains was decidedly more muted as currency traders booked profits in the wake of lackluster equity market performance and downcast economic data from UK.  

The pound was especially weak on a relative basis, as UK jobless claimant count spiked to an eye popping 75K from 45K projected and the unemployment rate hit 6.0% - its highest level since July of 2000. The rise in UK  unemployment rate is stunning in its scope if you consider the  fact  that last year unemployment was barely above  4%.  The contraction in the UK labor market puts additional pressure on BoE to act swiftly to ease monetary policy in the upcoming months. However, the minutes from the last MPC meeting suggested a mildly hawkish bias from the members.   

The BoE acknowledged that the economic outlook has worsened but also noted that a rate cut of more than 100bp would undermine confidence in the economy. The UK monetary authorities cautious stance suggests that they may opt for a more gradual approach to easing in 2009, lowering rates by -50bp in January and another -50bp in February, rather than slicing  the UK short term rates to 1% right away at the start of the year.

Cable initially weakened on the news with EUR/GBP cross racing to 9100, but  then stabilized  after traders had to reconsider the implications of BoE’s message. The EUR/GBP& nbsp; cross has been effectively trading as a carry trade with most market players expecting the rate differential between the two currencies to widen out rapidly. However, should the BoE slow down the pace of its rate cuts, the pair may finally pause for a breath around these levels, especially if Eurozone data continues to deteriorate calling into question ECB’s reticence to cut rates aggressively.   

The North American session ahead carries little meaningful event risk with only the Current Account data on tap. After yesterday’s knee jerk rally, equity traders may have second thoughts about any immediate payoff from Fed’s ultra aggressive policy actions and profit could kick in which in turn may slow down euro’s parabolic ascent. Nevertheless with Fed’s action now taken the balance of power has clearly shifted to the euro and the pair is likely to test the 1.4500 level before the year end, as the quest for yield continues unabated.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
NZD	12:00	7:00	NZD Westpac Consumer Sentiment		104.8
CAD	13:30	8:30	CAD Wholesale Sales		1.5%
USD	13:30	8:30	USD Current Account	-180B	-183B

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.