NEWS / Foreign Exchange

Dollar still under pressure as traders look towards FOMC verdict

May 8th - As the new trading week gets underway, the dollar has found itself under renewed pressure across the board. However, with little US economic data due out at the start of the week, positive momentum may prove difficult to find ??“ the FOMC rate verdict on Wednesday will be keenly awaited and a 25 basis point hike may offer some short term support whilst tomorrow??™s wholesale inventories also stand to offer an insight as to the state of the US economy. Friday??™s non-farm payrolls were genuinely disappointing so a run of bad numbers may be interpreted as the emergence of a wider slowdown, in turn leaving the greenback under further pressure from selling. Some respite may be forthcoming if Eurozone data fails to impress, giving many traders an excuse to book some profits on EUR/USD so with this in mind the economic forecasts due for release later this morning and also the retail PMI data should attract a fair degree of attention. Cable will also be worth watching as the week progresses. Although EUR yields are tipped to rise soon, there??™s no such backing for the Pound right now and gains may therefore prove tentative in the longer term. Today??™s PPI reading might offer direction but of more importance will be the Bank of England??™s quarterly inflation report on Wednesday ??“ any suggestion that the outlook into H2 2006 remains below the target 2% could see GBP/USD initiate something of a reversion??¦

Tim Wilbraham and Enis Mehmet