NEWS / Foreign Exchange

Daily FX Commentary

Dollar faces critical week

After strong gains on Monday, the dollar has faced a difficult weak with a renewed slide to record lows against the Euro around 1.4375 while the trade-weighted index is at fresh 30-year lows

The US data has offered no relief to the US currency with dismal housing data compounded by a weak durable goods orders report and a higher than expected figure for jobless claims.

There has been a further shift in interest rate expectations with markets now fully pricing in a further 0.25% Fed interest rate cut next week while there has been increased speculation over a 0.50% cut.

Next week, will be very important for the US currency and the events are likely to set the tone for much of the next two months.

The Federal Reserve interest rate decision is due on Wednesday while the latest PMI manufacturing report and monthly employment data will be released on Thursday and Friday respectively.

The Federal Reserve will need to judge the situation very finely to reassure markets that it will be able to support growth at the same time as capping inflation expectations.

There will be a temptation for the Fed to ease aggressively in order to protect the economy, but there will also be a heavy longer-term prices if the Fed appears to be neglecting inflation and the dollar.