The dollar is pausing for breath ahead of the Federal Reserve’s interest rate decisions, policy statement and economic projections tomorrow. The dollar index is on course to post its ninth monthly gain in a row having rallied 25% since the middle of last year, to levels not seen for 12 years. The speed with which the dollar has appreciated has caught many by surprise but even still dollar bulls remain plentiful expecting further strength as we near the first rate hike from the Fed. The debate regarding the timing of this first rate hike however has dominated for not only months, but years and it regularly seems to be a case of two steps forward, one step back as expectations continue to edge further away. The economic data recently has disappointed and once again yesterday saw US industrial production weaker than expected. The dollar is seeing some profit taking and US Treasury yields have declined almost every day since spiking after March’s impressive nonfarm payroll figure. An example of the dollar appetite drying up recently is the Aussie move overnight which has actually strengthened following relatively dovish RBA minutes. GBPUSD and EURUSD also remain bid this morning in early trade.
Today we see inflation and employment data from the Eurozone, as well as Germany’s ZEW Survey which can often move the euro. The single currency has recovered back above 1.0600 against the dollar, but with the longer term trend still remaining bearish, it’s hard to see any meaningful recovery unless the Fed does or says something surprising tomorrow.