EUR jumped to a 16-month high versus the USD today, reaching 1.4656. Now, only a minor resistance stands in the pair’s way to advance higher. As long as the US Federal Reserve still lags other major central banks in raising interest rates, the single currency will definitely shoot above 1.4685. ECB last month raised rates for the first time since July 2008 and while some believe this may prompt the Fed to tighten monetary policy sooner, financial markets are still in a ‘carry trade’ environment. Analysts say that if the Fed continues its accommodative policy the break to a new high opens up a test toward 1.48, and the euro could then test 1.50 in the coming weeks. The Fed is expected to say it will stick to its plan to complete a $600 billion bond-buying program in June. If however, the Fed surprises the market and turns more hawkish it will pose a risk to the sizable amount of dollar shorts in the currency market.
CAD moved higher versus the USD today as oil and other riskier assets advanced. However gains were limited due to the Fed policy meeting tomorrow. Risk is still remaining reasonably well supported and that is keeping USD/CAD pinned largely to the downside. The pair opened the session at 0.9533 and moved as low as 0.9494. The Fed’s meeting is expected to give no hint of tightening and markets are more focused on a news conference by Chairman Ben Bernanke tomorrow, which is the first regularly scheduled briefing by a Fed chief in the central bank’s 97-year history.
CHF hit a new peak versus the USD during the previous session hitting 0.8747. During the current session, the pair did not do much and moved within a range of 0.8763 – 0.8808.
GBP fell today as low as 1.6430. Traders said demand from a UK bank for EUR against GBP had a knock on effect on the GBP against the USD, pushing it further away from a 16-month high hit last week. Sterling has been boosted in the past few weeks by a broadly weak USD but analysts say that support may crumble if a reading of first quarter GDP due tomorrow shows the UK economic recovery remains erratic.
Gold was pressured today by investor uncertainty over the likely course of US monetary policy. The precious metal fell back (1492.8) from yesterday’s record high of 1518.02 ahead of the outcome of the 2-day US Federal Reserve policy meeting tomorrow.