Consolidation is likely to be a key theme ahead of major event risk later this week

The revised University of Michigan consumer confidence index edged lower to 62.5 for April from a provisional 63.2 which will maintain fears over the outlook for consumer spending. An important element in the survey was an increase in the inflation expectations component to 4.8% from 4.3% the previous month. This is particularly significant as the Federal Reserve will need to monitor inflation trends closely. The rise in inflation expectations will certainly intensify opposition from some Fed members to any further monetary stimulus.

There has been further speculation that the Fed will suspend interest rate cuts after sanctioning a further 0.25% cut at the April 30 meeting. This Wednesday’s FOMC meeting will, therefore, be an increasingly important focus over the next 48 hours, especially with no fresh data due for release on Monday.

The net shift in rate expectations will continue to provide some short-term support to the dollar despite major fears over the economy. Consolidation was a dominant theme on Monday ahead of key US events later this week with the dollar weaker at around 1.5650 against the Euro. The Euro dipped briefly after a weaker than expected regional CPI release from Germany.