Dollar remains strong ahead of FOMC meeting

Currencies Direct May 21st 2013 - 2 minute read

The US Dollar took a break from its
bull run yesterday, as most investors were in profit booking mode.
However, the Dollar still has managed to retain its strength
overall against most of its counterparts. US stocks also ended the
session a little lower than its record high on concerns over a
correction on the basis that the recent surge had been fuelled by
news of strong corporate earnings and acquisitions. Adding to the
slight decline were comments released by Charles Evans of the
Federal Reserve that although inflation is being looked at and
there are positive signs for the economy, the current stimulus
measures will be in place as it is necessary for the near future,
in contrast with most upbeat members who tend to lean on the
contrary, wanting stimulus to be tightened sooner rather than
later. With mixed messages coming out from all flanks, the FOMC
meeting should be an interesting one, with the minutes from Ben
Bernanke’s speech expected to drive the Dollar. Most markets expect
more of the same for the Fed Chairman – continuing stimulus for the
time being coupled with inflation targets and a rosy picture for
the US economy. The Dollar continued its surge against the Japanese
Yen, as Japan’s economy minister maintains that USD/JPY at 100 is
the maximum level that can be sustained for the economy as rising
bond yields may continue to have a detrimental effect.

Most of the Eurozone region was on
a holiday yesterday in a very quiet session for the currency which
opens this morning just under 1.29 against the greenback. It will
be a fairly quiet day from Europe again, with only a bond auction
in France listed in the economic data calendar, as most of the
focus moves to Bernanke’s speech. Sterling on the other hand,
recovered from a six week low against the US Dollar, on the back of
UK house prices increasing to record high easing concerns of a
stagnant economy. As per last week’s comment from BOE Governor
Mervyn King, most markets were not convinced about the inflation
targets of 2% by 2015. Analysts at Ernst & Young believe that
inflation, at a rate of 2.5% is set to continue for another 4
years. However, King issued a statement that a weaker pound has
managed to stimulate exports as the British Pound was the second
worst performer this year, after the Yen, amongst the 10 developed
market currencies. We open this morning against a softer Dollar at
1.5255 with most of the direction set to come from the FOMC
meeting. We also have inflation and production figures to be
release later this morning from the UK.

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Currencies Direct

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