The Dollar slid on Wednesday, snapping its early week gains against the Euro, as investors debated the outlook for interest rates in the US and Europe given statements from central bank officials in recent days. Investors expect a euro-zone rate rise as soon as July based on comments from ECB President Jean-Claude Trichet last week, although some of the bank's policymakers have whispered expectations of further rate rises.
The Euro did touch a session low against the Dollar on Wednesday after ECB board member Juergen Stark was reported saying the central bank is not considering a series of rate rises. The Euro then recovered as buyers debated Stark's comments compared to tough anti-inflation statements made by other ECB officials in recent days.
Yesterday, EurUsd rose 0.65% to 1.5455. UsdChf fell 1.22% to 1.0303. UsdJpy fell 0.45% to 106.85 after hitting 107.76 three-month high. GbpUsd rose 0.54% to 1.9637.
Investors will look to today’s US retail report for further clues about the state of the US economy. Fed Vice Chairman Donald Kohn said that a steady rise in energy prices has fueled an inflationary psychology in the United States and could be a problem if it does not reverse. In reaction to this, interest rate futures market was yesterday fully pricing a 50bp increase in the fed funds rate by October and a total of 75bp by year-end.