The USD remains unstable in relation to major currencies
The morning forex trades in Sydney showed unstable United States dollar in relation to major currencies such situation was caused by the more aggressive intentions of the central bank of the country in the process of constraining inflation. The central banks of the US and European countries changed their intentions concerning soon interest rate hikes thus have caused the split among the traders about the currency moves.
According to the last data the USD was at 107.98 Japanese Yen and the Euro was traded at $1.5519. The decrease of the USD was caused by the articles in Wall Street Journal and Financial Times stating that unnamed officials of the Federal Reserve said that there is only slight possibility of interest rates hike throughout this year.
However before the issue of these articles there was an opinion that the forthcoming interest rates hike will be estimated at three consecutive increases of the interest rates by 25 bp.
Moreover the officials of the European Central Bank as well as Bank of England have also expressed decreased intentions to increase interest rates. According to Bini Smaghi – a member of ECB the one time 25 bp increase of the interest rates will be quite sufficient to constrain the growth of the inflation and keep it at the 2 percent level. However the numbers of German ZEW economic sentiment report decreased sharply and reached it 15 years old level thus have also contributed to the decrease in interest rate growth expectations.
As for the UK, according to the Governor of the Central bank – Mervyn King the current situation with inflation is only a temporary one. Due to King’s words the Bank of England is not intended to get back the inflation to its previous level by the sharp interest rates hike.
As the senior forex analyst at Thomson IFR Markets – John Noonan has said the situation changed and the central banks now are not going to prevent further inflation growth by strict measures.
He has added that the forex market purchases the currency of those country the Central bank of which is supposed to pursue the strictest actions to decrease inflation. According to his statement the Euro and Australian Dollar will probably get the most benefit from the process of constraining inflation as the central banks of the Eurozone and Australia expressed the intentions to fight growing inflation. Therefore the Euro seems to be between the $1.53 and $1.58 after the changes of the Federal Reserve expectations. However the USD may gain some support in case the oil prices will stabilize soon.
