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EUR/USD Soars as Fed Cuts Rate

December 16, 2008 by

EUR/USD went up significantly today after the CPI report showed another month of deflation, the housing slid and the Federal Reserve announced that the federal funds rate is reduced. EUR/USD is currently trading near 1.3967.

Consumer Price Index (CPI) decreased by 1.7% at a seasonally adjusted rate in November, following 1% decline in October. The overall year-to-year gain is currently at 1.1%. The price decline exceeds the median analysts’ estimate — -1.3%.

Building permits were at a seasonally adjusted annual rate of 616k in November in U.S. — below October rate of 730k (revised up from 708k) and forecast of 700k. Housing starts fell from 771k (revised down from 791k) to 625k — below the forecast of 730k. That’s an extremely fast drop for the housing sector; its consequences will worsen the situation in the whole U.S. economy.

Federal Open Market Committee decided to cut the interest rate at its two-day meeting, which is ending today, — from 1.00% to the range between 0% and 0.25% as the overall outlook for economic U.S. activity has weakened further. The  U. S. interest rate is now lower than the Japanese and is virtually at its lowest level with no further space to for the Fed to lower it.

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