The Dollar rebounded from a 2-1/2 week low versus the Euro on Monday after a key forecasting gauge unexpectedly rose in April, suggesting that a sharp economic downturn in the US might be nearing a bottom. That eased fears about consumer confidence and reassured investors that the Federal Reserve would have room to hike interest rates later this year. The Fed's aggressive interest rates cuts to ward off a recession have undermined the Dollar's appeal to foreign investors seeking higher returns in favor of the euro and other high-yielding currencies.
EurUsd dropped to a session 1.5486 low. It last quoted 1.5528, down 0.31%. UsdJpy rose at 104.69 and UsdChf at 1.0573 peaks as Investors cheered news that the private Conference Board's Leading Economic Indicators index rose 0.1% after a matching increase in March. Economists had expected a flat reading in April after the March rise, which had followed five straight months of declines. UsdJpy traded last at 104.47 up 0.4%. UsdChf rose 0.44% to 1.0522. GbpUsd went lower to 1.9490, down 0.44%, after hitting 1.9624 intraday high. UsdCad was down 0.72% at 0.9921.
FX Traders also attributed the Dollar's rebound to position squaring after last Friday's sharp sell-off, sparked by a report showing a sharp drop in consumer confidence to a 28-year low in May. Minutes from April FOMC meeting are due on Wednesday, and investors will look for additional confirmation that the Fed has finally moved to the sidelines. US interest rate futures were pricing a 90% chance that the central bank would leave its benchmark rate steady at 2% in June. Prospects for a rate hike by year end were around 92%. That is reassuring news for Dollar bulls, on edge about oil prices that have surged to a record above $127 a barrel.
Analysts said inflation worries would keep the market focused on US Producer Price data due on Tuesday. However, robust readings from the German ZEW and Ifo sentiment indexes due this week could boost the Euro by reinforcing the case for the European Central Bank to leave rates on hold a while longer rather than cutting them. Euro zone rates stand at 4%, and most analysts expect the ECB to hold them there to fend off inflation. The Bank of Japan is widely expected to keep interest rates at 0.50% at a two-day policy meeting that started on Monday.