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FOMC Downbeat on Econ, USD Slumps

Wed, May 21 2008, 19:29 GMT
by Korman Tam

Forexnews.com

5/21/2008 2:50 PM: EUR/$..1.5784 $/JPY..103.00 GBP/$..1.9690 $/CHF..1.0263 AUD/$..0.9634 $/CAD..0.9846

FOMC Downbeat on Econ, USD Slumps

The dollar¡¯s slide extended into the Wednesday session amid a dearth of fresh US economic data. Crude oil surged to yet another record at $132 per barrel, pressuring the greenback lower.

The minutes of the Fed¡¯s last meeting were released earlier and revealed a mixed assessment, offering a downbeat outlook for the economy and expectations for risks to inflation to remain. The decision to cut rates at the April 29-30th meeting was a ¡°close call¡±, with members expressing concern about upside inflation risks with clear signs that inflation expectations had risen. Further, the Fed minutes noted that it saw no sign of bottoming in the housing market and expects inflation to remain elevated this year while the jobless rate is seen rising significantly.
 

Euro Propped to One-Month High

Traders have pushed the euro higher against the dollar, to a new one-month high at 1.5781 on a combination of upbeat Eurozone economic data and surging crude oil prices. Germany¡¯s May Ifo sentiment survey shrugged off estimates for a slight decline, with the current conditions survey climbing to 110.1 versus calls for a dip to 108 from 108.4 in April. The business climate component also improved, rising to 103.5, and beating out forecasts for a minor decline to 102 from 102.4 a month earlier.

The stronger economic report from Germany reinforces sentiment that the ECB will maintain its tightening bias ¨C and keeping its yield differential over the US. The calendar for Thursday is light, consisting of March industrial orders, which are seen down 0.4% versus 0.6% in February and considerably lower at 4.7% from 9.9% a year earlier.

EURUSD remains firm near 1.5770 with resistance seen at 1.58, followed by 1.5840 and 1.59. Subsequent ceilings are eyed at 1.5940, followed by 1.5970 and the pair¡¯s all-time high at 1.6018. Support begins at 1.5730, followed by 1.57 and 1.5670. Additional floors will emerge at 1.5630, backed by 1.56 and 1.5550.

Published on  Wed, May 21 2008, 19:30 GMT