Forex Trading News: Speculation that Fed will not tighten monetary policy

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The US Federal Reserve is expected to say it is in no rush to tighten monetary policy even though it will likely be terminating its USd600 billion asset purchase program in June. This scale back in the US government’s support for economic recovery is in sharp contrast to the European Central Bank, which hiked rates last month and looks likely to raise rates again to the threat of rising inflation.

Many investors expect the dollar’s index against a basket of currencies to eventually fall to an all-time low after it marked a new three-year low on Wednesday. EURUSD hit 1.4712 in Asian trading. In 2008, the Dollar Index hit an all-time low of 70.698

The Head of forex trading at BNP Paribas in Tokyo, Koichi Yoshikawa commented that “In addition to the fact that U.S. rate hike expectations are receding, the market is also looking at U.S. debt problems as its debt ceiling is expected to be hit next month. It’s becoming hard to justify dollar buying not just from a monetary policy perspective but also from a fiscal policy perspective.”

On Wednesday, upon the conclusion of a two-day Fed policy meeting, Federal Reserve Chairman Ben Bernanke will give the first regularly scheduled news conference by a Fed chairman in the central bank’s 97-year history. Bernanke will likely use the occasion to promote the case for a patient approach to withdrawing the central bank’s extensive support for the U.S. economy.

In addition, the Fed’s policy-setting Federal Open Market Committee, in a statement due at about 1630 GMT on Wednesday, is expected to indicate it will allow its USD600 billion bond- buying program to conclude as scheduled at the end of June. It is also expected to reiterate that it will keep interest rates unusually low for “an extended period.”