The dollar was broadly weaker as investors remained cautious ahead of the FOMC policy decision tomorrow. The euro rose for a second day against the greenback to a new weekly high of 1.0650. Lending support to the single currency was Eurozone economic data.
Employment grew by 0.1% in the Eurozone in the last quarter of 2014, while economic sentiment in the region remained high according to the ZEW survey. The German ZEW though was lower-than-expected. There was also an upside surprise to the Eurozone’s final core CPI rate. Without the energy and unprocessed food, the core inflation rate rose 0.5% month-on-month for a 0.7% annual gain, accelerating from the 0.6% year-on-year rate in January.
Meanwhile data from the US disappointed today. Housing starts plunged in February by the most in four years, down 17% on colder-than-usual temperatures and snowstorms in parts of the country. Yesterday’s US data on industrial production also disappointed. Uncertainty over the upcoming FOMC meeting which concludes on Wednesday with a policy decision, is making markets nervous to invest in the dollar today. Focus will be on a possible removal of the word “patient” from the Fed statement, as investors anticipate a rate hike as soon as the middle of this year.
Profit-taking on the dollar continued today from yesterday. Against the yen, the greenback dipped to a low of 121.10 yen.
The pound was the only major currency that underperformed against the dollar, falling to a low of 1.4725 from a day’s high of 1.4844. Sterling was under pressure ahead of key UK risk events on Wednesday. These include the UK Budget, employment data and the Bank of England minutes. The minutes are important to watch as they will provide the breakdown of MPC votes giving insight into which members are changing their stance on interest rates and how close the committee is to enacting a rate change in the future. In the previous vote count it was unanimous to hold rates at 0.5%.