Thursday, 28 Oct 2010

Dollar Eases Heading into Fed Meeting

The dollar has been under pressure during the European trading session. Traders have been questioning the size of the bond purchases that the Federal Reserve may undertake in their meeting next week. Eyes are also on Europe as European leaders debate the next mechanism to rescue a failing EU state. The yen is stronger following the Bank of Japan's decision to hold interest rates steady.

At lunch time during the European trading session, the EUR/USD was trading higher at 1.3850, up on the day from 1.3823. The GBP/USD was up sharply following better than expected CBI Sales. The Cable is trading at 1.5880, following an opening day price of 1.5802. The USD/JPY is down at 81.30. The pair opened the day at 81.53.

The market has largely accepted the concept of renewed quantitative easing by the Fed. But economists and analysts debate whether the bond purchases will be finite or open ended. Questions also remain as to how the market will react to an announcement next Wednesday. Many believe the second round of quantitative easing has already been priced into the dollar given the sharp depreciation the dollar has experienced over the past 4-months.

Traders are also focusing on the EU meeting in Brussels where German Chancellor Angela Merkel will present a new plan for a rescue mechanism in case of another debt crisis from emerging in Europe.

The yen is strengthening following a decision by the Bank of Japan to hold interest rates steady at the their levels close to 0%. The BOJ moved up its next scheduled meeting by 10-days to address the market following the next meeting by the Federal Reserve. The USD/JPY may continue its sharp downtrend to its all-time low at 79.80.