The U.S. dollar continued its decline and fell for the sixth day against the Euro, matching its longest streak since May 2009, on speculation the Federal Reserve will discuss measures to keep yields low to support the economy. The Dollar Index, used to track the currency versus those of six major U.S. trading partners, neared it lowest level since August 2008. The U.S. central bank is widely expected to leave its target rate for overnight lending at a record low of 0.0%-0.25% at its two day meeting starting today, according to a survey by Bloomberg. Some expect the Fed to consider measures to continue to support the economy as the end of its $600 billion asset purchase program, or QE2, approaches in June. The U.S. dollar continues to fall versus the Swiss franc, which has gained as Switzerland’s economy is gaining momentum as demand from Asia and the Euro area bolsters the Alpine country’s exports. Indeed, the Swiss government last month raised its forecast for 2011 export gains to 4.1% from 2.6%. Today’s economic docket is expected to show the S&P Case-Shiller index of home prices in 20 U.S. cities for the 12 months through February fell 3.3%, the biggest decline since November 2009.
The Euro rose against the U.S. dollar and the yen as European Central Bank President Jean-Claude Trichet suggested policy makers stand ready to raise interest rates further to counter inflation expectations. “We have risks of second-round effects here and there,” Trichet said in an interview released today. Second-round effects refer to an increase in consumer prices prompting bigger wage increases that then feed through to faster inflation. Trichet continued to say, “it is extremely important to continue solidly anchoring inflation expectations in a period which is market by uncertainties and turbulences.” With no major economic data released today, the common currency also found support as European equity indexes rose after being closed for the Easter holiday.
The Japanese yen gained versus the U.S. dollar as falling Asian equities stoked demand for the safe-haven currency. The yen also found support against the greenback on speculation the Federal Reserve will discuss measures to keep yields low to support the economy. Nevertheless, we expect the Japanese yen has a limited upside in the future due to speculation that the Bank of Japan will once again threaten to intervene if the yen continues to strengthen.
The British pound declined against the U.S. dollar after a report showed growth in factory orders slowed in April. The Confederation of British Industry’s orders gauge slipped to -11 from a +5 the month prior. Meanwhile, Bank of England policy maker Andrew Sentance said global growth, higher oil prices and a weak pound may keep inflation above the bank’s target for “some time” and further undermine the Monetary Policy Committee’s credibility. Sentance has led the call for higher interest rates on the MCP, which has continued to be split towards monetary policy. Investors will now await British Gross Domestic Product data tomorrow, which is expected to show the economy, grew at 0.5% after contracting 0.5% in the fourth quarter.
