NEWS / Foreign Exchange

Daily FX Commentary

Euro looks for tough ECB stance

The dollar was trapped in narrow ranges ahead of the March FOMC minutes on Wednesday with lows around 1.3440 before a limited recovery. The dollar was unable to sustain the gains and weakened to 1.3470 in Asian trading on Thursday as sentiment remained weak.

Attention will return to the Euro-zone on Thursday with the latest ECB interest rate decision. There is a strong probability that the central bank will leave interest rates at 3.75% in which case prime attention will focus on the President Trichet??™s statement following the decision.

If Trichet uses the term ???strong vigilance??™, this would hint at a May rate increase which would tend to strengthen the Euro. A firm, but more measured stance looks likely which will limit the potential for strong Euro buying given that a June increase is priced in with markets also discounting an increase to at least 4.25% this year. Underlying Euro sentiment will still remain firm given confidence in the underlying economy.