Fed’s Evans Says US Economy Should Improve Later This Year

Chicago Fed president Charles Evans, a non-voting member of the FOMC this year, said Monday that the Fed policy is accommodative, with the real funds rate zero or slightly negative. He said that economic growth risks are to the downside and inflation risks to the upside. He expects continued weak growth and tight credit in the near term, but said the US economy should improve somewhat in the second half of this year. He also noted that while the stimulus package may help American consumers, the fiscal package may not result in a big increase in retail sales. Since Evans isn’t a voting member this year, his remarks aren’t really moving the currency markets, but having said that, his remarks confirm what many traders are thinking, that although the Fed is leaving the door open to further rate cuts, it is unlikely to do so at the next meeting. With inflation risks spreading to consumer goods, the Fed may have to raise rates again in the not-so-distant future. The US dollar may continue its uptrend if it could survive this week’s avalanche of events, and if other Fed speakers give hints about a pause in the Fed easing cycle.

Kiwi Falls

The New Zealand dollar fell to the lowest in more than three months against the US dollar after a report showed consumer confidence dropped to a record low. A record 44% of 1,100 people surveyed in the two weeks ended May 4 said they thought it was a bad time for a major household item purchase, an increase from 40% in April. Just last week, New Zealand’s central bank Governor Alan Bollard said the outlook for the economy has worsened. NZD/USD fell to 0.7630, the lowest since January 24.

Forex Trading

The US dollar is having a mixed performance in the currency markets Monday. The greenback weakened against the Euro, British pound but up against the Swiss franc and Japanese yen. EUR/USD rose to a high around 1.5505, and still has to overcome resistance between 1.5510-30 before targeting 1.5570-80. USD/CHF’s nearest support is around 1.0380-1.0400, followed by 1.0350-60. GBP/USD dipped to an intraday low of 1.9440 but then bounced 180 pips to above 1.9600 from there after the release of a report showing that UK producer prices rose 7.5% on an annual rate (6.4% expected), and 1.4% monthly pace - both record high readings, giving rise to speculation the BOE may now slow down the pace of rate cuts.

Tuesday:

UK CPI, retail price 0830 GMT

US retail sales, import price 1230 GMT

US business inventories 1400 GMT

US ABC consumer confidence 2100 GMT

Japan trade balance 2350 GMT

Posted in Categories: Economy, Eurozone, Forex, Japan, New Zealand, Switzerland, UK, USA.

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