Dollar Holds Strong Ahead of FOMC Announcement

Dollar Holds Strong Ahead of FOMC Announcement

The United States (U.S) dollar moved higher against its major trading partners early Monday, with a quiet Monday allowing markets to prepare for a busy week that includes the release of May retail sales Wednesday morning and the Federal Open Market Committee announcement Wednesday afternoon.

The FOMC is widely expected to raise its federal funds’ rate by 50 basis points at this week’s two-day meeting, with the possibility of a further 50 basis point increase at the July 26-27 meeting.

Some analysts even suggest that after last week’s stronger-than-expected consumer price report, a larger 75 basis point increase could also be on the table at this week’s meeting, but markets see that as more likely at the July meeting after more data is received.

Other data scheduled to be released this week include producer prices on Tuesday, import and export prices and the Empire State index on Wednesday, initial jobless claims and housing start on Thursday and industrial production on Friday.

A quick summary of foreign exchange activity heading into Monday indicates that USD-CAD rose to 1.2854 from 1.2774 at the Friday US close and 1.2741 at the same point Friday morning prior.

There are no Canadian data scheduled for release Monday after a solid May Canadian employment report was released Friday. The Bank of Canada meets next on July 13 after a 50 basis point rate increase at the June meeting, with further monetary policy tightening expected.

USD-JPY rose to 134.459 from 134.4001 at the Friday US close and 133.776 at the same point Friday morning. Japanese business sentiment declined further below the breakeven point in Q2, data released overnight showed, indicating increasing pessimism.

The Bank of Japan meets Thursday and Friday and is expected to hold rates near zero while other central banks, including the Fed, accelerate monetary policy tightening.

GBP-USD fell to 1.2184 from 1.2318 at the Friday US close and 1.2440 at the same time Friday morning. UK data released earlier Monday showed a decline in Q2 gross domestic product and a drop in April industrial production, led by the manufacturing sector.

The UK trade gap grew for the three months ending in April, though it narrowed for April alone. The Bank of England meets Thursday when another increase in interest rates is expected.

EUR-USD fell to 1.0459 from 1.0519 at the Friday US close and 1.0589 at the same point Friday morning. There are no EU data scheduled for release Monday. READ: Dollar Trades Stronger Ahead of FOMC Minutes

The European Central Bank said last week it expects to raise its target interest rate by 25 basis points at its July 22 meeting and will end its net bond-buying program on July 1, with comments from ECB President Christine Lagarde that inflation risks are tilted toward the upside. #Dollar Holds Strong Ahead of FOMC Announcement