The US dollar index fell to fresh 16-month lows, touching a fresh record low against the Swiss franc for the third consecutive day and a fresh 29-year low against the Australian dollar. The declines come in front of the FOMC rate announcement and first ever press conference. Investors widely expect that the central bank will leave interest rates unchanged while signalling an end to its quantitative easing two programme in June. By continuing loose policy conditions, the central bank is supporting the dollar’s function as a funding currency for carry trades. The euro found support after a well received Spanish debt auction was announced. The demand for Spanish debt suggests investors remain confident that the debt crisis will not spread to core countries.
Sterling
The pound traded lower against the euro in the run up to the Q1 GDP release. The figures will be a first estimate of growth in the first quarter and after last quarter’s surprise contraction, investors are taking a cautious approach towards the release.
US Dollar
US Treasury Secretary, Timothy Geithner, said that a strong dollar would “always be in the US interest”. The comments appeared not only prompted, but also late considering the dollar’s index touched a fresh three-year low. The dollar’s declines come in front of the policy announcement by the Federal Reserve. Most investors believe that the FOMC will leave interest rates on hold, while signalling an end to the central bank’s quantitative easing program, as expected in June.
Euro
The euro opens this near 16-month highs against the US dollar. The euro took back earlier losses made after Jean Claude Trichet suggested that a strong US dollar would be in the interest of the United States. Talk on Greek debt restructuring is ongoing, but overshadowed by strong demand at a Spanish debt auction.
Japanese Yen
The Japanese yen weakened slightly after S&P downgraded its outlook for Japanese sovereign debt. The rating agency warned that while its rating on debt remains unchanged the outlook has been weakened by the tremendous cost that will accompany rebuilding efforts. The government is widely expected to pass its first emergency budget by the end of the week, which is expected to approach near $50 billion.
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