NEWS / Foreign Exchange

Daily FX Commentary

Official comments vital for dollar

Following the Federal Reserve statement on Wednesday, the comments from Fed officials over the next 24 hours will be very important. If officials concentrate on the inflation risks, this will indicate that the Fed is not happy with the market interpretation and this would support the dollar with a small possibility of sharp gains, although more modest gains would be more likely.

The US currency will be vulnerable to renewed selling pressure if the Fed appears to condone the market's view that rate cuts are on the way. The most likely outcome is that the Fed comments will deter aggressive dollar selling, but not trigger a big advance.

European comments on the exchange rate and interest rates will also need to be watched very closely. The German Finance Minister stated on Thursday that a further Euro rise would pose risks to exports while the head of the German IFO institute called on the ECB not to increase interest rates further.

If the Euro strengthens towards the 1.35 level, protests against currency strength are likely to intensify which will make dollar support levels much tougher to break.