FOREX UPDATE - USD

The US dollar continues to trade in tight ranges, recording a 1.2820-1.2854 range against the EUR this morning in Asia and a 116.59-116.93 range against the JPY. Though the USD yesterday managed to shrug of weak consumer confidence data, the Fed minutes released later yesterday surprisingly did not help push the greenback higher.

The FOMC minutes suggested that the decision to pause at the last FOMC meeting had broad support, but there was no great conviction that the tightening cycle had ended.

But despite the FOMC clearly keeping the door open to further rate hikes, the greenback was unable to follow through.

Indeed with the Fed minutes stressing that future interest rate changes continue to depend on economic data going forward, we stay bearish on the greenback. Since the August 8 FOMC meeting, US data especially on housing has come out weaker than expected.

We feel that the Fed has now finished and the next move will be rate cuts in 2007.

Today's data includes the ADP estimate of Friday's forthcoming payrolls data, and Q2 GDP preliminary data which should be revised up from the initial reading of just 2.5% to a more palatable 3.0% growth rate for the US economy.

Tomorrow we get Chicago PMI and core PCE data and Friday we get payrolls and ISM. We think the data on balance this week will continue to show the US economy losing further momentum.