Currency Markets Wait For Rate Decisions

The forex markets have been in a standstill on Wednesday: events like the FOMC minutes from the Fed’s March 18 meeting didn’t inspire trading outside of the range we have been seeing the past few days. The Fed officials admitted that although “some contraction in economic activity” is likely, they now may not cut interest rates as aggressively as they have done recently. Some FOMC members saw the risk of a “prolonged and severe downturn”, but still “monetary policy alone could not address fully the underlying problems in the housing and financial markets”. The minutes also said, “Several participants noted that the problems of declining asset values, credit losses, and strained financial market conditions could be quite persistent, restraining credit availability and thus economic activity.” Basically, they didn’t give the market more new information; what they highlighted we already knew from Bernanke’s testimony last week when he first mentioned about a recession in the US. So far, the Fed has cut the benchmark lending rate by 200 basis points in the first 11 weeks of the year, something which has exacerbated the US dollar’s decline.

What Will ECB Do?

The European Central Bank is widely expected to keep the key policy rate steady at 4% this Thursday on rising inflationary pressures in the Eurozone. Almost every one is expecting the ECB to leave the rate unchanged despite the continuing turmoil in the interbank money market. However, it is still anyone’s guess that the central bank may be forced to cut interest rates later in the year as European economy slows down.

UK: The Good and the Bad

Nationwide UK consumer confidence fell to the lowest in March, since the index was first launched in May 2004, as banks cut down on lending and the housing market downturn worsened. The index fell 1 point to 77. What later sort of stemmed the steep fall of the British pound was better-than-expected UK February industrial production which rose 0.4% m/m, with the January figure revised to 0.5% m/m from 0.4% m/m. The annual rate rate rose to 1.9% from 0.7%. Meanwhile, many expect the BOE to cut the main rate on Thursday. Yesterday, the Confederation of British Industry (UK’s largest business lobby), urged the BOE to cut the rate to help companies and consumers as the economy slows.

Forex Trading

EUR/USD has two upside hurdles around 1.5800 and 1.5900. If the first is broken, the pair may retest the second. USD/CHF looks bearish if it falls below 1.0000.

Thursday:

Australia unemployment rate 0130 GMT

UK trade balance 0830 GMT

Bank of England rate decision 1100 GMT (rate expected to be cut to 5% from 5.25%)

ECB rate decision 1145 GMT (rate expected to stay at 4%)

US trade balance, initial jobless claims 1230 GMT

Fed’s Bernanke speaks 1700 GMT

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