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Forex: Dollar decline

The underlying theme of dollar weakness has continued overnight, with the main dollar index (DXY) hitting a new low for the year below the 80.0 level. The single currency itself managed to stage something of a come-back yesterday above the 1.3750 area. Expectations of more policy action and the passing of year end factors which had boosted the euro at the end of 2013 made for a soft start to the year, but so far in February there have only been 3 down days for EURUSD. The minutes to the January FOMC meeting will be released later today, where the main focus will be the Fed’s interpretation of the slowdown in data seen to that point.

Also of interest will be UK data, although the latest Bank of England Inflation Report has downgraded the significance of the unemployment rate as a tool of their forward guidance on policy. To this end, the minutes to the February meeting will also be of interest to judge the discussion around the change in forward guidance announced last week. Overall in FX, it is the weaker dollar that remains the main story, with the recovery in emerging market currencies from the lows seen at the end of January also putting some downward pressure on the US currency. Also of note was data yesterday showing foreign investors shedding US assets and China in particular selling US Treasuries as the fastest pace for two years.

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