Tuesday, 26 Apr 2011

Dollar Selling Continues Before Fed Announcement

Traders continue to sell the US dollar and a surprising flight to safety in the Swiss franc was noted with the USD/CHF falling to a new all-time low. During the New York trading session US consumer confidence numbers will be released with positioning already being laid out prior to the Fed's first news conference following an interest rate decision.

At lunchtime in London the euro was stronger despite higher than expected deficits in Greece. Eurostat released a report showing an EU wide budget gap of 6.0% of GDP that was down from 6.3% from the previous year. However, Greece's budget deficit was 10.5% of GDP on expectations for a decline to 9.6% from the previous year when the budget deficit soared to 15.4% of GDP.

Despite the news the EUR/USD managed to climb to week's high of 1.4650 before trading back to 1.4616. A target for the EUR/USD remains at the 2009 high at 1.5140.

The Swiss franc rose to a new high versus the dollar as the trend of a weak dollar continues and lower bourses in Asia helped increase demand for the safe haven franc. The USD/CHF touched a low of 0.8744 before pulling back to 0.8773. The gains in the franc are surprising given that European bourses are trading higher today by almost 0.5%. Typically the Swiss franc serves as a safe haven bid in times of higher risk aversion. One explanation may be the overall dollar weakness as well as traders' expectations for the SNB to avoid further intervention attempts such as last year's failed dollar buying program.

This afternoon the Conference Board will release its US consumer confidence numbers which are expected to show a slight increase in US consumer sentiment. An uptick in the numbers would be a positive for the dollar which has had little positive news to stem the across the board selling the dollar has faced. Also today the Fed FOMC begins its meeting with an interest rate announcement due tomorrow followed by its first press conference. The Fed is expected to hold US interest rates steady and continue on its path for a full implementation of QEII.