Apr 30 2008
US Intrest Rate Statement On Tap
Yesterday, the USD gained against most of the major currencies on speculation the Federal Reserve will signal that it has finished lowering Interest Rates after 6 reductions since September.
The dollar traded at 1.5559 vs. the EUR at 6:10 a.m. in Tokyo, after rising 0.6% yesterday and touching 1.5541, the strongest rate since April 3. Futures on the Chicago Board of Trade show an 82% chance the Fed will cut the target rate for overnight lending by a quarter of a percentage point to 2% today and odds of 71% that the rate will be held at that level in June. Only a week ago, the USD plunged to a record-low against the EUR, boosting demand for raw materials as a hedge against inflation. Now, following the rising confidence in the US currency, commodities dropped the most in 5 weeks as a rally by the USD eroded demand for energy, metals and crops as alternative investments.
A stronger dollar will reduce some benefits for US exporters, but it could help curb inflationary pressures. Currency analysts attribute the greenback’s return from a historical low of 1.6017, mainly to short USD selling and profit-taking.
Fundamentally, the dollar is still weak. The majority of indicators reflect major weakness in the US economy. Today we expect heightened USD volatility to continue as the 1st quarter GDP figures are scheduled for release at 12:30 GMT. Gross Domestic Product figures may show that the US economy shrank in the first quarter while Friday’s jobs report is also expected to show payrolls fell 80,000 in April.
The ADP Nonfarm Employment Change and the Chicago PMI figures are also due to be released today. These market moving indicators are also forecasted to set a lower result in comparison to the prior month. A result below the expectation will probably produce bearish momentum for the USD, as it would be clear proof that the world’s largest economy is in a stage of contraction. On the other hand, a reading in line with expectations isn’t likely to spark much reaction as traders will be anxiously awaiting the FOMC decision as well as Friday’s Nonfarm Employment Change.
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