Dollar remains weak as FOMC meeting begins

The Federal Reserve Open Market Committee starts its two-day meeting on Tuesday as sentiment towards the dollar continues to weigh on its performance. Investors are starting to wonder whether the economy is already showing signs of rolling over even as the central bank works towards adding the final touches to its second phase of quantitative easing. Some investors are starting to wonder what an ex-stimulus economy will look like and fast-concluding that the dollar is doomed to an era of permanently low interest rates.

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U.S. Dollar – For the first time the Fed will host a press conference after it concludes its April meeting tomorrow. The media will have its first opportunity to drill Chairman Bernanke on where he thinks the economy is heading after he delivers his prepared remarks. Data due for release on Tuesday is likely to showcase the ongoing albeit gradual decline in the housing market in the form of the Case-Shiller/S&P index, with nationwide metropolitan home values predicted to be down 3.3% from a year ago. The dollar index has fared badly during the past week continuing its painful erosion. On Tuesday the index eased by 0.2% to 73.82 leaving it close to its weakest since August 2008. Later in the week data for Q1 GDP is scheduled to depict a slowing in the pace of expansion, which has investors alarmed at a time when the central bank is busy buying government bonds through the open market.

Euro – The euro once again took up the running taking advantage of the lame dollar and spurred on by an interview with Jean-Claude Trichet in a Finnish journal. The head of the European Central Bank remained open to further monetary tightening in order to nip nascent inflationary pressures in the bud. Mr. Trichet warned that there were signs of second-round inflation effects ‘here and there,’ which accounts for his willingness to distinguish between non-conventional bond-purchase policies and traditional monetary policies designed specifically to combat inflation. The single currency again rallied to $1.4650 to match last week’s highest price against the dollar since December 2009.

Canadian dollar – The influence of U.S. demand on the fortunes of its neighboring economy is restraining the performance of the so-called loonie despite improving risk appetite elsewhere. Crude oil futures for June delivery are trading at $112.00 per barrel while the price of gold has come off another record-high, yet neither event is providing the fillip for the domestic currency that might be expected. The loonie currently buys $1.0466 U.S. cents and compares to last week’s four-year high when it stretched to $1.0545.

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