US Dollar Reaches Close to a 3 Week Low

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Thursday, following the Federal Reserve’s inaction to change perception that it is leaning towards a dovish stand on policies, the US dollar reached close to a 3 week low against other currencies.

For several market agents, the outcome of the policy meeting held by the Fed did not turn out to be what they expected. However, a drop in sovereign yield spreads in the euro zone sent the euro over the currency’s peak in the past few days.

After hitting a low of 78.995, the dollar index reached 79.026. This followed an announcement from Ben Bernanke, the Fed Chairman that the central bank will carry out another bond buying session in case the economy requires it. Rabobank’s strategist, Philip Marey stated that though the FOMC has projected there will be a rise in GDP growth, unemployment will continue to stay over the target by 2014 end. According to Marey, in that case, monetary easing will be possible. This is most likely to happen in case recovery is not stable.

No Support from Policy Makers

The Fed’s latest projections indicated there was no rise in support from policy makers for an increase in price hike prior to 2014. This has disappointed investors bullish on the dollar. They were expecting an opening that will allow them to exit easy policy early.

When the dollar fell, the euro reached $1.3234, a 3 week high, which was very close to its major resistance level. This is a 50% reversal of its drop from end of Feb to mid April. It is also a 61.8% fall from the late March peak to the new low.

Debts Yields Ease up in France and Spain 

If the level breaks, a $1.3370/90 band of resistance from March end to April beginning will be called up. France and Spain’s debt yields eased quite well from the latest highs. However, Italy did not have the same fortune in light of the debt auction in Rome, which has made many cautious.

The dollar, though it remained in the range between 80.30 – 81.30, at Y81.17, eased 0.2% against the yen. The range was maintained in the recent sessions that took place before the policy meeting held by the Bank of Japan, Friday.

Prior to the meeting, the yen is not likely to rise much. According to industry insiders, the monetary policy will get eased on Friday if the BOJ increases asset purchases by a maximum of Y10 trillion.

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