US Dollar (USD) Exchange Rate Softer as Ukraine Tensions Ease; Fed in Focus
The US Dollar was on the back foot on Monday as investors speculated on the odds of the Federal Open Market Committee delivering a dovish policy statement later this week.
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Although the US government introduced 24 new sanctions against Russia today (17 against companies and 7 against individuals) the fact that the Ukraine situation didn’t escalate as many feared it would bolstered higher-risk currencies.
However, US Dollar losses were limited as domestic pending home sales figures showed a 3.4 per cent increase last month; the strongest increase for nearly three years.
February’s figure was positively revised to a month-on-month decline of 0.5 per cent.
On the year pending home sales fell by 7.4 per cent rather than the 10.3 per cent drop expected.
The FOMC is expected to leave interest rates unaltered and continue with the steady tapering of stimulus, and a dovish statement could weigh on the US Dollar.
Key events for the week ahead
Gross Domestic Product (April 30)
Fed Pace of Treasury Purchases (April 30)
Fed Pace of MBS Purchases (April 30)
FOMC Rate Decision (April 30)
Unemployment Rate (May 2)
But if this week’s other US reports meet or exceed expectations the ‘Greenback’ could rally.
As currency strategist Michael Sneyd observes; ‘We’ve got US GDP, the Fed meeting and then payrolls on Friday so there are a few more catalysts for foreign-exchange moves this week. There’s been a spike higher in Euro-Dollar and Cable, which has been put down to M&A deals.’
The US GDP data is expected to show annualised quarterly growth of 1.2 per cent in the first quarter of the year. The US economy expanded by 2.6 per cent in the final quarter of 2013.
Meanwhile, Thursday’s ISM manufacturing gauge is forecast to have advanced from 53.7 to 54.2.
The week’s big news is the US non-farm payrolls report. It is believed that the report will show that the US economy added 210,000 positions in April, driving the nation’s unemployment rate down to 6.6 per cent.
As a stable labour market is one of the Fed’s top priorities, a strong result could prompt a more hawkish rhetoric at future FOMC meetings.
As it stands the US Dollar is trading against the British Pound in the region of 0.5948 and against the Euro in the region of 0.7224.