The Dollar slipped against the Euro and edged up against the Yen on Monday as investors waited to see how major central banks at policy meetings this week will respond to a potential global economic slowdown.
The Bank of England and the European Central Bank are all due to meet, and dealers will be focusing on whether they are concerned about the severity of the US slowdown and whether it will affect their economies.
If all those banks warn about slowing conditions down the road, then investors' willingness to take risks could suffer, hurting higher-yielding currencies such as the Australian dollar and helping low-yielding units like the yen. The Reserve Bank of Australia lifted rates by a 25bp to 7% and said a significant slowing of growth was needed to keep inflation contained, which Forex traders took as a signal that more rate rises could be in store.
Yesterday, EurUsd climbed 0.16% to 1.4825, largely driven by gains in EurJpy and profit-taking on the Dollar's burst of strength on Friday. EurJpy was up 0.37% to 158.21 while UsdJpy ticked up 0.22% to 106.72. AudUsd rose 0.33% to 0.9073 after earlier touching a near three-month high of 0.9101. GbpUsd gained 0.48% to 1.9747.
Uncertainty continued to rule the US Dollar after it was whipsawed last week by another hefty interest rate cut from the Federal Reserve, weak data on US growth and jobs and a surprisingly robust manufacturing report.
Since the credit crisis flared up last summer, European Central Bank officials have kept their focus on containing inflation and played down the risk of a growth slowdown. However, some analysts do not think that the euro zone can escape from the knock-on effects of the slowing US economy. The ECB is expected to keep rates on hold and the Bank of England will likely lower borrowing costs on Thursday. Sterling firmed broadly in a snap-back from heavy selling on Friday. The Fed has already slashed its benchmark interest rate by 1.25% in the last two weeks, the biggest move in that time frame since the US central bank began using the fed funds rate as its primary policy tool in the early 1990s.