NEWS / Government Ministries

Dollar on back foot as FOMC looms

August 2nd - Although there are still some key US economic indicators to be released before the FOMC meeting ??“ namely Friday??™s non-farm payrolls ??“ many traders have already formed a consensus that the Fed will be leaving interest rates on hold at next week??™s meeting. This is despite yesterday??™s upbeat numbers showing that core inflation remains healthy and demand in the manufacturing sector is also strong, but the dollar has now held onto yesterday??™s losses against a number of major currencies right through the Asian session. However, with the ECB widely tipped to add a quarter point at tomorrow??™s meeting, Australian rates moving up to 6% last week and Japanese monetary policy finally starting to tighten, the longer term outlook is certainly casting dollar yields in a less than attractive light. With this in mind, assuming we do see no change to rates by Ben Bernanke, should the accompanying comments also be somewhat dovish then it would be of little surprise to find the greenback under further pressure in the near term. It would seem however that with current evidence suggesting that inflationary pressures are far from gone, any moratorium on US interest rate hikes will prove somewhat temporary in nature.

Stuart Scrase and Enis Mehmet