The US dollar got trampled as weak economic data spurred bets of a 50bp rate cut by the Fed next month, as the US may be unable to avoid a recession. The crumbling dollar took the biggest plunged against the New Zealand dollar as investors moved into higher yielding assets, followed by the rest of the commodity currencies as prices for gold and oil advanced. Meanwhile, the US dollar plunged against the euro to bring the pair above the 1.56 level, with the British Pound strengthening to trade above 2.00. The US dollar also weakened against the low-yielding Swiss franc and Japanese yen, effectively giving up most of yesterday’s gains as investors sought safer assets.

The economic outlook for the US turned sour as fresh data portrayed the escalating turmoil in the housing market, with consumers becoming increasingly fearful of the mounting downward pressures for the slowing economy. Home prices in the US fell for the 13th consecutive month as the S&P/CaseShiller Home Price index fell to minus 10.7 percent from minus 9.0 percent. Consumer confidence also added to the grim outlook as it plunged more than expected to a five year low of 64.5 from 76.4 – spurring speculation that consumer spending will be next to follow. However, manufacturing activity turned around in March as the Richmond Fed index moved into positive territory for the first time in five months.

Increased volatility took hold of the securities market as the outlook for the weakened economy turned bleak, but picked up towards the afternoon as agricultural giant Monsanto raised their project earnings for 2008. As a result, the DJIA fell almost 100 points during the morning session, but ended the session only 16.04 points lower to hold at 12,532.60 points. The broader S&P500 picked up 3.11 points to bring the index to 1,352.99, with Indymac Bancorp leading the winners while Irwin Financial topped the losers.

Falling stock prices raised the demand for risk free investments, and lifted the price for US Treasuries. As a result, the benchmark 10-Year yield fell to 3.50 percent from 3.55 percent, with the 2-Year yield following as it dropped to 1.77 percent from 1.81 percent.

Looking ahead, tomorrow will bring an eventful day as the Durable Goods Orders will kick off the morning at 12:30 GMT, and will be followed by the New Home Sales index at 14:00 GMT. We expect to see a moderate rise in both areas, which should ease the downward pressures on the US dollar, but any divergence from the forecasts could promote another day of losses for the fading currency.

Jamie Saettele is a Technical Currency Analyst for FXCM.