The USD remains unchanged
The United States currency exchange rate kept its high positions in relation to the Euro, as there was the lack of the economic data at the forex markets. According to the CMC Markets official James Hughes almost no changes occurred at the financial markets at the beginning of the week. The only data we will have are the German ZEW survey and US PPI report that are to be issued tomorrow. They will provide some new numbers to consider but at the moment there is nothing to make decisions from. Moreover this reports are expected to affect interest rate markets because they will be issued before the monthly meetings of the US and European Central Banks.
Since the last September the Federal Reserve decreased interest rates by 325 bp (to 2 percent) that turned to be the lowest level since the December 2004. As for the European Central Bank they have not changed the interest rates since the last June and it’s present level remains at the 4 percent point. The forecast for ECB is that they will keep the interest rates unchanged until the end of 2008 with the intention to keep the existing balance between the numbers of economic growth and inflation level. European Central Bank still considers the inflation its major task and supports the Euro. According to the president of the ECB the Bank has to watch closely for the inflation moves. The Central Bank is already very attentive to the process of wage negotiations in the European Union.
Taking into account different comments from ECB officials we suppose that the European interest rates will really not change in the future even in case the economy growth will continue to decrease.
As for the US, the main data to be considered will be available on Wednesday it will be the minutes of the Federal Reserve meeting on 30 April when the interest rates were decreased by the 25 bp and the opinion of the end of rate cuts period appeared.
However according to the Forex strategist at Calyon – Daragh Maher the Federal Reserve will just change it rate cuts policy on the wait and see approach. Despite the fact that the Federal Reserve officials have already told about the end of the rate cuts we cannot be sure it is the real bottom of the interest rates as the economy data keeps to be quite soft.
