US Dollar remains strong ahead of FOMC meeting

The US Dollar took a break from it’s bull run yesterday, as most investors were in profit booking mode.
US Dollar remains strong ahead of FOMC meeting
However, the Dollar still has managed to retain its strength overall against most of its counterparts.

US stocks also ended the session a little lower than its record high on concerns over a correction on the basis that the recent surge had been fuelled by news of strong corporate earnings and acquisitions.

Adding to the slight decline were comments released by Charles Evans of the Federal Reserve that although inflation is being looked at and there are positive signs for the economy, the current stimulus measures will be in place as it is necessary for the near future, in contrast with most upbeat members who tend to lean on the contrary, wanting stimulus to be tightened sooner rather than later.

With mixed messages coming out from all flanks, the FOMC meeting should be an interesting one, with the minutes from Ben Bernanke’s speech expected to drive the Dollar.

Most markets expect more of the same for the Fed Chairman – continuing stimulus for the time being coupled with inflation targets and a rosy picture for the US economy.

The Dollar continued its surge against the Japanese Yen, as Japan’s economy minister maintains that USD/JPY at 100 is the maximum level that can be sustained for the economy as rising bond yields may continue to have a detrimental effect.

Most of the Eurozone region was on a holiday yesterday in a very quiet session for the currency which opens this morning just under 1.29 against the greenback.

It will be a fairly quiet day from Europe again, with only a bond auction in France listed in the economic data calendar, as most of the focus moves to Bernanke’s speech.

Sterling on the other hand, recovered from a six week low against the US Dollar, on the back of UK house prices increasing to record high easing concerns of a stagnant economy.

As per last week’s comment from BOE Governor Mervyn King, most markets were not convinced about the inflation targets of 2% by 2015.

Analysts at Ernst & Young believe that inflation, at a rate of 2.5% is set to continue for another 4 years.

However, King issued a statement that a weaker pound has managed to stimulate exports as the British Pound was the second worst performer this year, after the Yen, amongst the 10 developed market currencies.

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