Consolidation is likely to dominate ahead of the Federal Reserve meeting with some reservations over aggressive dollar selling.
The dollar remained under pressure on Monday, struggling to secure more than limited relief. The US currency weakened to new record lows around 1.4440 against the Euro and was unable to sustain a brief recovery to 1.4375.
Markets are still expecting a Federal Reserve interest rate cut this week, although futures markets moved slightly to show a possibility that rates will be left unchanged. Even with a slight shift, overall dollar confidence will remain very weak with persistent fears over a further deterioration in the economy, although there will be some hesitation over aggressive dollar selling.
EU commissioner for economic and monetary affairs Almunia stated that currency-market volatility needed to be addressed. Given the unease over currency trends, comments from Euro-zone and US officials will need to be watched very closely in the short term.
US Treasury Secretary Paulson has issued a slightly more robust version of his standard reference to the strong dollar policy with a statement that the US is strongly committed to a strong dollar. There is a small possibility of a co-ordinated move to push the dollar stronger around the time of the Federal Reserve meeting.