There was nothing really different in the FX markets Tuesday morning that hasn't already been seen for the past 18 months.

The U.S. dollar just continues to grind lower as short-term traders enjoy a field day betting against the currency. Early Tuesday morning, the currency hit a new all-time low of 1.2363 against the euro. The British pound, meanwhile, is now trading at a 10-year high around 1.7530. The greenback did get a bit of relief when the economic data was released at 8:30 a.m. in New York. However, the numbers were mixed and support for the currency didn't amount to much.

As Dow Jones reports:

"The U.S. current account deficit narrowed to $135 billion in the third quarter, from an upwardly revised $139.4 billion the previous quarter. Economists had forecast a decline to $136.2 billion.

Despite the capture over the weekend of Saddam Hussein, the dollar has remained under broad-based pressure this week as investors focus on the difficulty the U.S. faces in attracting enough investment flows to finance the current account gap."

This problem was brought further into focus on Monday after the U.S. Treasury released data showing that net investment inflows into U.S. securities in November totaled $27.65 billion, well below the $45.3 billion needed to make up for the deficit. Perhaps of more significance, inflation remains a non-factor in the U.S., meaning that investors will have to continue to wait for indications the Federal Reserve is ready to start raising rates again. The consumer price index fell 0.2 per cent in November after being unchanged the month before, while core, nonfood, non-energy prices slipped 0.1 per cent after a 0.2-per-cent increase in October. The gauge of inflation was expected to be unchanged, with the core figure forecast to rise 0.1 per cent. Meanwhile, housing starts unexpectedly jumped 4.5 per cent in November to a 20-year high, versus expectations of a 3.1-per-cent decline.

"The CPI numbers will reduce expectations of a Fed rate hike even further," said Meg Browne, currency strategist at HSBC in New York. "The market's been focusing on interest rates and the current account deficit,' and the difficulty the U.S. faces in attracting capital owing to the low yield on offer. "And that theme's still running." Overall, however, the market was generally unfazed by the batch of data.

Although the numbers are unlikely to steer the dollar from its broader downtrend, Browne expects investors to start taking profit between now and the end of the year.

She says that even though there's still underlying demand for euros, dealers will be tempted to sell the single currency anywhere between $1.23 and $1.25. Thomas Malloy, a trader at Bank Leumi in New York, said the market is following a familiar pattern. "Over the past couple of months, the market has ignored data in favour of playing around with trends." The current trend remains one of dollar weakness, though Malloy said the dollar is showing signs of resilience. He thinks the euro may be able to climb as high as $1.2375 or $1.2380 in the near term, but says the up trend is beginning to look tired.

Tuesday's Expected Trading Range: 1.3100 (.7633) – 1.3200 (.7576)

Based on $5 million

by Christopher Scott, Special to the Ottawa Business Journal

Scott is Ottawa Branch Manager for Custom House Currency Exchange Ltd., 153 Sparks Street Ottawa, K1P 5B5 (613) 234-6005 or Toll-Free 1-800-242-3147. Fax: (613) 234-6008. E-mail him directly at Cscott@customhouse.com or by general office e-mail Ottawa@customhouse.com Visit online at www.customhouse.com