US Dollar edges higher as markets await Fed meeting
Washington (Apr 26) The dollar firmed on Monday, recovering from recent losses in the wake of some weak U.S. economic data, but gains are expected to be contained ahead of the Federal Reserve's key monetary policy meeting this week.
The Fed will announce a decision on monetary policy on Wednesday which will help set the tone for the dollar in the near to medium term.
The dollar's searing rally since the summer of last year had slowed following a run of poor U.S. economic numbers, including a softer-than-expected non-farm payrolls report for March. That has cemented expectations for a more gradual pace of interest rate increases by the Fed.
Last week, weak figures for new home sales, weekly jobless claims and business spending undermined the dollar.
"Any sense from the Fed that a rate hike appears on a further horizon could mean a weaker U.S. currency above levels like $1.10 versus the euro," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"But if the Fed should downplay recent U.S. weakness and keep a rate hike on the table, the dollar would have a better base on which to strengthen."
In mid-morning trading, the dollar was up 0.1 percent against a basket of currencies at 97.033, rising after two days of losses. The euro, meanwhile, slipped 0.2 percent to $1.0850, still pressured by weak sentiment after last Friday's Eurogroup meeting failed to provide concrete solutions to help Greece avert default.
Greece looks set to run out of cash in the coming weeks.
Richard Benson, co-head of portfolio investments at institutional currency investment manager Millennium Global, said fair value for the euro was probably around $1.15 but it might fall another 5-10 percent before stabilising.
Helped at the margins by a cut in Japan's credit rating by Fitch, the dollar also gained 0.3 percent to 119.34 yen, still well below last week's high of 120.10 yen.
The Bank of Japan meets on Thursday, following the Fed's Wednesday statement, and is widely expected to hold policy steady. The policy decision, however, might be influenced by the median inflation forecast produced at the meeting.
While the possibility is slim, BoJ policymakers may opt to ease if the cut to this fiscal year's inflation forecast is unexpectedly big, or if they feel the slowdown in inflation is damaging enough to warrant pre-emptive action.
Source: Reuters
