The US dollar index has seen fresh 16-month lows for the last three days. The dollar has fallen under heavy selling pressure after the FOMC gave no indication that it would withdraw loose monetary conditions. The Bank of Japan also indicated that it would maintain its loose policy stance. This stands in contrast to the more hawkish sounds coming out of the European Central Bank. The ECB and Bank of England will meet next week to discuss monetary policy. As such, markets are keen to get a glimpse of flash HICP figures in the eurozone. Higher inflation figures would set a hawkish tone for the meeting and continue to support the euro. The pound was supported after first quarter growth was released in line with expectations.

Sterling

Sterling is trading at 17-month highs against the US dollar. The UK Q1 GDP release seen was in line with market expectations, which was a relief after the shocking contraction growth suffered in the prior quarter. The release helped to support sterling, although it was not seen as strong enough to impact next week’s Bank of England rate decision. As a result, sterling’s gains made against the euro could be eroded, while gains against the US dollar expanded by continued dollar selling.

US dollar

The US dollar fell under heavy selling pressure after the FOMC rate announcement and first-ever press conference from chairman Ben Bernanke. The chairman of the central bank revised lower growth estimates, while revising higher the inflation outlook. Core inflation remains benign; allowing the central bank more time to carry on with its loose monetary policy. The loose policy stance sent equity markets higher which has encouraged risk appetite. As a result, funding currencies for carry trades, such as the yen and US dollar have come under pressure. The central bank decided to leave interest rates on hold but signalled an end to the central bank’s quantitative easing 2 programme in June, much as markets had expected.

Euro

The euro opens at 17-month highs against a falling US dollar. Attention to widening spreads and growing credit debt swap prices has been all but ignored as investors focus on the US and its troubles combined with a loose monetary policy stance.

Japanese yen

The Japanese yen suffered losses after the central bank left its interest rates unchanged, economic data was weak and equity markets rallied. Interest rates are as low as possible with the bank targeting a rate between zero and 0.1 per cent.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.