US dollar at new lows

Publication date: 20 June 2012
Author: Mark Bolsom, Travelex

The US dollar slid to new lows on Tuesday and remains under selling pressure ahead of tonight’s Federal Reserve monetary policy announcement in which the US central bank may announce plans for another round of quantitative easing.

The prospect of one more stimulus injection, which could potentially flood financial markets with more cheap dollars, has encouraged traders to pile into equities and risk-based currencies such as the euro and Australian dollar. However, the euro’s advance may prove short-lived with Spanish debt markets still in turmoil whilst the pound failed to register any notable gains yesterday after British inflation data reinforced the Bank of England’s dovish bias.

The pound will again be under the spotlight today with investors keenly anticipating minutes from the BoE’s early June policy meeting. Any indication of imminent monetary support could prove detrimental for UK assets. On the other hand, sterling could make progress against the US dollar alongside most other major currencies before tonight’s Fed decision. However, investors will also be wary of protecting their exposure over the next 24-hours with market orders. Should the Fed refrain from more quantitative easing analysts expect the safe haven dollar to surge, especially with Spain moving ever closer towards a bailout.