The dollar continued to rebound versus the yen, edging up to 100.84, in a holiday-thinned Monday session - with Europe and Asia still closed for the Easter holiday. Economic data released earlier today also provided support for the greenback, with existing home sales in February reversing January's 0.4% decline, rising by 3.9% to 5.03 million units. Further, the revised offer by JP Morgan to acquire Bear Stearns at $10 per share, quadruple its initial offer, sent US equity bourses rallying with the Nasdaq advancing by more than 3%, and both the Dow Jones and S&P 500 up by over 1.5%.
The US economic calendar this week consist of the Richmond Fed survey, March consumer confidence, building permits, durable goods orders, new home sales, final Q4 GDP, core PCE, personal consumption, personal income, and the University of Michigan consumer sentiment. The final reading for Q4 GDP is seen unrevised at 0.6% on a quarterly basis and unchanged at 2.6% y/y.
We expect the dollar to continue edging higher against the majors in the week ahead, with initial targets of 1.52 versus the euro and 1.96 against the British pound. The correction in commodities is also seen extending, thereby pressuring the commodity currencies such as the Aussie and Canadian dollar lower.
The main event risks over the next few months will be central bank meetings from the FOMC, ECB and RBA. We expect the FOMC to cut rates by 50-basis points when it next meets at the end of April bringing the benchmark lending rate to 1.75%. The RBA is seen lifting its key interest rate by 25-basis points to 7.5% on April 1st. Meanwhile, the ECB is largely expected to leave rates unchanged when it deliberates policy on April 10th - but will likely reiterate its hawkish bias against inflation. Also to be closely watched is the G7 Finance Ministers meeting in Washington, DC on April 12th-13th. Although the likelihood for a coordinated intervention to prop up the dollar among the G7 remains a low probability event, the recent sharp fluctuations and volatility in the currency market will no doubt bring fx to the fore of discussions.