Forex - Dollar steady, focus to fall on euro zone, UK rate decisions
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LONDON (Thomson Financial) - The dollar was steady against major currencies at the start of a week where focus will be on central bank rate decisions in Europe, and the UK.
Having firmed on Friday after strong US non-farm payroll figures and the ISM survey on manufacturing activity, the greenback fell back slightly against the euro in early Asian trade.
"The euro-dollar managed to stabilise fairly quickly after the sell-off seen following Friday's ISM release, with the prospect of Wednesday's European Central Bank meeting the most likely supporting factor (for the euro)," said Ian Gunner, head of research at Mellon Foreign Exchange.
The main US release out today are factory orders figures, expected to show a 0.8 pct rise in April from March.
Meanwhile the main event this week for currency markets is the European Central Bank's interest rate decision on Wednesday. The market has fully priced in expectations that the key refi rate will be hiked to 4.0 pct, however close attention will be paid to ECB president Jean-Claude Trichet's accompanying statement for any clues on where rates will peak.
"The ECB is likely to revise its growth and inflation projections higher, suggesting tighter monetary conditions, but the biggest impact will be whether the word 'accommodative' is removed from the statement," said analysts at BNP Paribas.
"In the case of the ECB continuing to describe monetary conditions as accommodative while simultaneously raising its growth and inflation projections the market will price in rates not topping out before 4.50 pct," they added.
The only data of note out today from Europe is the euro zone producer price index. April producer prices are seen rising by 0.4 pct from the previous month for a 2.3 pt annual increase.
Meanwhile the pound was steady against the dollar, and is expected to remain so with little data of any note out head of Thursday's interest rate decision.
Markets are expecting the Bank of England to keep its key repo rate unchanged at the six-year high of 5.50 pct. Only 3 of the 32 economists polled by Thomson Financial News expect the MPC to lift borrowing costs a quarter point for the second month running.
"With inflation on the retreat, activity numbers will have to be more punchy to encourage policymakers into an accelerated pace of tightening, with pound still vulnerable to any soft data given the hawkish stance of the market," said Daragh Maher, currency strategist at Calyon.
Today's release of the Construction purchasing managers' index for May is expected to show growth remained roughly level in May from April's reading of 59.8.
London 0824 GMT Sydney 0400 GMT
US dollar
yen 122.00 up from 121.99
sfr 1.2279 down from 1.2294
Euro
usd 1.3445 down from 1.3447
yen 164.07 up from 164.03
sfr 1.6514 down from 1.6530
stg 0.6777 down from 0.6784
Sterling
usd 1.9840 up from 1.9834
yen 242.04 up from 241.94
sfr 2.4364 down from 2.4380
Australian dollar
aud 0.8327 up from 0.8323
stg 0.4196 unchanged 0.4196
yen 101.60 up from 101.53
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