Yesterday the greenback continued on its bearish path against most of the majors and it slipped to another new record low versus the EUR. The fears that the subprime crisis will spill over into the broader economy and actually begin to slowdown growth rekindled expectations that the Fed will further slash its 4.75 % key benchmark rate. An additional rate cut by the Fed could have a significant negative impact on the greenback as it will reduce the dollars appeal against the high yielding currencies and therefore it will lower the level of foreign investment coming into the US. In the last few weeks the greenback weakened the most against the EUR and this is mainly due to the widening growth differential and the shrinking interest rate differential between the US and the European economy. The current market expectation is that will we see another rate cut by the Fed in the near future and this is putting the dollar under major pressure. However a weak dollar combined with rising oil prices will push up inflation and this could restrict the Fed's decision with regards to future monetary policy.

There were significant news releases from the US yesterday and Fed Chairman Bernanke remained discrete during his speech before the Chamber of Commerce Summit. Looking ahead to today the most significant news to be released from the US will be Existing Home Sales and Consumer Confidence. Both these figures are expected to release weaker than last month and with the sustained problems in the housing sector it is very likely that these figures may spring a downward surprise. If this is the case then we could see some volatility that will push the dollar downward. The main reason for this is because the weak data will raise the markets expectation of another rate cut by the Fed which will put pressure on the greenback.

Yesterday the EUR traded relatively uneventfully all across the board but it continued to sky rocket against the USD reaching a new all time high for a third consecutive day. The EUR touched the record mark of $1.4030 on the back of increased market expectation that the Fed will once again cut rates in the near future. Even the recent string of weak European data, including yesterdays Industrial New Orders which released below expectations at -4.0 %, have been unable to put the brakes on the EUR's bullish rampage versus the greenback. However the weak data is further indication that the strong EUR is beginning to negatively impact the European economy and if we see more bad news from the Eurozone over the next few weeks it could cause the EUR to reverse. So traders will be paying close attention to today's German Ifo figures to spot any further cracks developing in the European economy. If these figures release weaker than expected then the EUR should lose some slight ground all across the board and it could signify the peak of the EUR's rally against the greenback.

Yesterday the JPY gained ground against the USD and the EUR, reaching the 114.99 and 162.21 levels respectively. The JPY strength was mainly being driven by the problems in the UK banking sector which have resulted from the spreading global credit crisis. These problems created a feeling of risk aversion among investors causing carry trades to unwind. In carry trades, investors transfer funds from a country with low borrowing costs and invest in one with greater yields and hence they earn the difference between the borrowing and lending rate. The risk involved in undertaking this investment strategy is that the currency moves erase those profits. Therefore if there is a feeling of risk aversion among investors then carry trades will unwind and the JPY will strengthen as was seen yesterday. Looking ahead to today the direction of the JPY may depend on the performance equity markets and their impact on carry trades, also key US and European data release may cause some slight movement in the Japanese currency.