Last week was probably not the best week to be long the US Dollar as the currency declined across the board against its major counterparties. Both the Euro and the Cable were able to record gains against the US currency, gains that could have been mistakenly attributed to their own strength but a careful analysis would show that it’s the Dollar that has been on the decline ahead of this week’s Fed meeting.
A round of discouraging reports and data from the US recently and ambiguity from a few Fed officials have been the reasons behind the retreat of the Dollar in the past couple of weeks. Investors and traders are wondering whether this temporary weakness in the figures coming out of the US economy will drive the Fed to delay their rate hiking plans even beyond September. It’s this kind of uncertainty that has led to the recent losses in the Dollar and as we move closer to the Fed meeting this week we should see some more.
As a result of Dollar’s weakness the other major currencies have moved higher with the Euro making its way to the 1.0900 barrier on Friday. The Single currency has seen some gains in recent times even though the situation with Greece’s debt renegotiations continues to pose a risk. Looking ahead, we could expect a continuation to this bullish reaction from the Euro and the 1.1000 level could be the next stop as Dollar traders will want to be extra reserved ahead of the Fed meeting later in the week.
The uncertainty over Dollar’s outlook and how the Fed will react to the recent discouraging round of figures have allowed the Cable to move to fresh highs as well. The UK currency saw fresh 7-weeks highs against the US Dollar on Friday as it climbed towards the 1.5200 level. The Cable seems to have built a stable foothold above the 1.5000 area for now and increased bullishness over the Dollar’s strength could allow the Cable to move even higher over the next sessions with the 1.5250 area coming into focus.
At the beginning of the week the calendar is relatively empty so we could expect a slow start for the week. The main theme as we have detailed above is the recent Dollar retreat, especially as we move closer to the Fed meeting on Wednesday and how it will affect policymakers’ tone and expectations.
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