The FOMC meeting on Wednesday is dominating the currency markets today, leading to some dollar weakness. Other central banks are also in focus this week, with policy decisions by the Bank of Japan on Tuesday and by the Swiss National Bank on Thursday. Policy meeting minutes will be released by the Reserve Bank of Australia on Tuesday and by the Bank of England on Wednesday.
The market is likely going to be quiet going into the FOMC on Wednesday and there could be position-trimming into it, as many investors were long the dollar until recently. There is some risk from the Fed as the greenback’s rapid rise could prompt the Federal Reserve to be a little more cautious about raising interest rates this year and this could push back expectations of a rate hike from June to September.
The dollar consolidated against the yen around congestion at 121.20. The dollar was also weaker against the euro. US data today included manufacturing output which fell in February for the third straight month.
Helping support the single currency today were comments from Ignazio Visco, a member of the ECB Governing Council who made comments over the weekend that Eurozone interest rates could not remain near zero forever and the ECB must try to get inflation close to its 2% target as quickly as possible. He expressed concerns that the euro had weakened faster than expected and there were risks the ECB’s QE program could overshoot its goal, as well as fuel an excessive rise in the prices of financial and real estate assets.
The euro rose to a high of 1.0615 in the European session after having touched a fresh 12-year low in Asia. The broader bias for the single currency remains bearish as the policy divergence between the ECB and the Fed are weighing on it. Meanwhile, ECB President Draghi’s speech at 18:45 GMT today will be important to watch.
Sterling was slightly stronger today versus the dollar, as it rose from Friday’s multi-year lows of 1.4698. This week’s risk revolves around the UK budget release, Bank of England minutes and employment data, all out on Wednesday.