Forex Markets Await FOMC Rate Decision

The US dollar has been holding steady against other currencies pre-FOMC rate decision at 1815 GMT Tuesday. The Euro has rallied almost 300 pips against the Japanese yen as US stocks surge Tuesday morning on the back of stronger-than-expected earnings results from Goldman Sachs and Lehman Brothers. Many market participants are expecting a 75-100 bp cut from the Federal Reserve, and if this happens, the US dollar may lose its footing again. Watch out for the result and the statement later. With regards to the Euro rate, Eurogroup chairman Juncker said foreign exchange moves will be monitored with the highest attention and these abrupt, irrational forex moves are undesirable for global growth. His comments are having little effect prior to the FOMC decision.

What European Officials Are Saying

ECB’s Tumpel-Gugerell said Tuesday that slower world growth, high raw material prices and less favourable financing conditions have darkened the economic outlook for the Eurozone. However, fundamentals are solid for the Eurozone even if uncertainty is unsually high and upward risks dominate, she said. Meanwhile, IFO president Sinn said there was no need yet for the ECB to cut rates to stimulate the economy. Sinn said that if the US does slide into recession, the EMU economy is bound to feel the effects.

US Economic Data

US housing construction data for February are slightly better than expected. Starts ran at a 1.065 mln annualized pace, vs a median estimate of 1.004 mln and a prior 1.071 mln reading. However, permits, a sign of future activity, sank a greater-than-forecast 7.8%. Core US wholesale prices in February, excluding food and energy, rose more than double the 0.2% gain expected. Including food and fuel, prices climbed 0.3%.

Wednesday:

Bank of England minutes, claimant count 0930 GMT

Eurozone trade balance 1000 GMT

US MBA mortgage applications 1230 GMT

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