US Dollar Index Lower Overnight

CURRENCY FUTURES

The U.S. dollar index was lower in the overnight trade.

The bullish impact of the larger than expected increase in the second quarter gross domestic product report was largely offset by the weaker than anticipated durable goods orders report.

The greenback is likely to drift lower due to prospects of a more aggressively accommodative Federal Reserve.

The Ifo Business Climate indicator for Germany fell for a third consecutive month to 87 in July, which is the lowest level since February, and compared to forecasts of 88.9.

The Japanese yen hit its highest level since May 6 against the U.S. dollar as pressure increases for the Bank of Japan to hike interest rates at its July 31 policy meeting. Traders are unwinding the increasingly unprofitable long U.S. dollar – short Japanese yen carry trades. The Japanese yen is likely to remain firm ahead of the month-end BoJ policy meeting.

The Canadian dollar declined to a 14-week low as investors reacted to yesterday’s Bank of Canada’s policy decision. The BoC lowered its key interest rate by 25 basis points to 4.50%.

INTEREST RATE MARKET FUTURES

Futures are higher across the board on the belief that the Federal Open Market Committee is on a path toward accelerated accommodation policies.

The U.S. Treasury will auction seven-year notes today.

There is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 5.25% to 5.50% at its July 31 policy meeting. However, financial futures markets are now pricing in three 25 basis point cuts in the fed funds rate later this year.

There is almost a 100% probability that the FOMC will lower its fed funds rate by 25 basis points at its September 18 meeting. In addition, the probability of an additional rate reduction from the FOMC at the November 7 meeting is 73%, and there is a 69% chance of another 25 basis point rate cut at the December 18  meeting.

Higher prices are likely for futures.

STOCK INDEX FUTURES

Stock index futures were sharply lower yesterday with some follow-through weakness today in light of disappointing corporate earnings results.

Gross domestic product in the second quarter at an annualized rate was up 2.8% when a 2.0% increase was expected, and personal consumption expenditures on an annualized rate were up 2.3% when a gain of 1.9% was anticipated.

Durable goods orders in June declined 6.6% when a gain of 0.3% was estimated.

Jobless claims in the week ended July 20 were 235,000, which compares to the predicted 238,000.

The 10:00 central time July Kansas City Federal Reserve manufacturing index is anticipated to be -5.

Coming easier credit policies from the Federal Reserve will ultimately rescue this market

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