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Dollar sinks ahead of Fed policy decision

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The dollar sank on Tuesday as a plunge in US consumer confidence offered further evidence of a slowing US economy as Federal Reserve policymakers opened a two-day meeting.

[NEW YORK] The dollar sank on Tuesday as a plunge in US consumer confidence offered further evidence of a slowing US economy as Federal Reserve policymakers opened a two-day meeting.

The euro jumped to US$1.0981 from US$1.0889 late Monday.

Kathy Lien of BK Asset Management said the dollar was "getting crushed" ahead of the Federal Open Market Committee (FOMC) policy statement Wednesday.

"The Fed meeting is hands down the most important event risk this week and based on how the dollar has been trading, investors are clearly positioning for less optimism," Ms Lien said.

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A series of disappointing US economic reports has increasingly raised speculation that the FOMC will want to wait to increase rates that have been pegged at zero since 2008.

The Fed had signaled a possible hike as early as June, but analysts now expect it in September at the earliest.

"The more uncertain shape of the US economy has many expecting the Fed to wait until at least September to boost rates, a longer timeframe that's taken air out of the dollar's sails," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

On Tuesday, the Conference Board reported its Consumer Confidence Index dived to 95.2 in April from 101.4 in March, instead of rising as expected. Consumers reported growing pessimism about current and short-term US economic conditions.

The FOMC resumes its policy meeting Wednesday after the release of the government's first estimate on first-quarter economic growth. Analysts' predict a growth rate of 1.0 per cent, down from a 2.2 per cent pace in the previous quarter.

Traders awaited the FOMC statement, expected to be released at 1800 GMT, hoping for clues to the direction of interest rates.

"The fresh commentary coming out of the Federal Open Market Committee may fuel the near-term selloff in the greenback and produce a further advance in EUR/USD should the central bank show a greater willingness to carry its current policy into the second-half of 2015," said David Song at DailyFX in a market note.

AFP

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