The U.S. dollar fell against most of its peers before a report that is predicted to show existing home sales in the U.S. slumped in May, bolstering the case for the Federal Reserve to keep interest rates at a record low. Purchases of existing home sales are expected to decrease 5.0%, the weakest since November, according to the median forecast of economists. The dollar weakened to an almost one-week low versus the Euro as the Federal Reserve begins its two-day policy meeting today amid continued signs the U.S. economy is under pressure. Futures on the Chicago Board of Trade show the likelihood the Fed will increase its target rate by March 2012 dropped to 21.0% from 30.0% a month ago. The Federal Open Market Committee has kept its benchmark rate unchanged between zero and 0.25% since December 2008. Ahead of the Fed’s interest rate decision tomorrow afternoon, expect the greenback to remain under pressure during our trading session as U.S. equity futures foreshadow a higher open.
The Euro rose against the U.S. dollar as European equities advanced after European leaders said a Greek default can be avoided. Today Greek Prime Minister George Papandreou seeks to secure multi-party support for his government’s austerity measures, a condition for receiving aid needed to avoid a default. He called a vote last week after opposition parties rejected pleas for national consensus and the prime minister’s handling of the crisis led to defections from his party. The 17-nation currency also found support after Jean-Claude Juncker, who leads the group of euro-area finance ministers, said Papandreou assured him the Greek government would do everything to ensure delivery of financial aid. The Euro pared its gains after a report today showed investor confidence in Germany, the Euro-region’s biggest economy, slumped to the lowest in 2 ½ years this month. Nevertheless, expect news from the Greek parliament to drive the direction of the Euro today. However, some expect the meeting to last late into the night and possibly later than our trading session.
The Japanese yen continues to hold a tight range against the U.S. dollar, as the pair has been unable to find a definitive direction. However, a number of analysts have begun to forecast minimal gains for the yen in the coming months even as Japan falls into its third recession in a decade. Some investors have indicated the slowdown in U.S. growth, Europe’s sovereign debt crisis and uprisings in the Middle East as reason to purchase the yen as a safe-haven.
The British pound held familiar ranges versus the U.S. dollar, but fell against the Euro after Bank of England Markets Director Paul Fischer said officials haven’t ruled out adding to their bond-purchase program if needed to support the economy. More stimulus is “still very much on the table as one of our potential policy actions and it hasn’t been ruled out,” Fisher said at a conference this morning. Meanwhile, data today showed Britain’s budget deficit narrowed less than forecast to 17.4 billion pounds in May. Market participants will now await the release of the central bank’s minutes of its most recent policy meeting tomorrow. The sterling could come under pressures as the Bank of England has shifted to a more dovish tone over the past couple of months.
