Euro Slumps on Data
by Korman Tam
6/23/2008 3:00:00 PM
The dollar edged higher against the euro and sterling at the start of the week, benefiting from soft Eurozone and UK economic reports and rising to 1.5469 and 1.9588, respectively. The currency market continues to largely be driven by sentiment over global interest rate differentials as traders closely scrutinize economic reports and gauge the scope and direction of monetary policy moves by central banks.
In the coming week, the key highlight will be the FOMC's monetary policy announcement scheduled for Wednesday afternoon. The market is largely expecting the Fed to stand pat, while the accompanying policy statement will be closely assessed for clues as to when the FOMC will shift to a tightening bias in order to curb inflation. In light of the mixed views revealed in recent Fed speak, the statement will likely express caution over the inflationary outlook while simultaneously attempting to temper market expectations for aggressive policy tightening.
The US economic calendar consist of April consumer confidence, durable goods orders, May new home sales, Q1 GDP, Q1 core PCE, weekly jobless claims, personal income, consumption, personal spending, and the University of Michigan consumer sentiment survey. The data this week will highlight the current dilemma facing the Fed with consumer sentiment, housing and manufacturing likely to remain weak while inflation continues to tick higher. Despite some hawkish rhetoric from the Fed's Lacker, who last week suggested the FOMC needed to aggressively respond to persistent elevated inflation with additional vigilance, given the current soft economic outlook, we see the FOMC holding off until the fourth quarter with only a 25-basis point hike.
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