US Dollar, USD: Exchange rate strength could persist as markets stay weak

Last Updated on Thursday, 05 May 2011 09:44 Written by Sam Coventry Thursday, 05 May 2011 09:43

Key theme for the euro dollar exchange rate today will be the possible indication of a June rate hike in Europe.

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The US Dollar is slightly lower against the euro in morning foreign exchange rate trade on the morning of the 5th of May in London.

Euro Dollar is 0.303% higher on the day with 1 EUR = 1.4894 USD.

The pound dollar rate is however 0.242% lower with 1 GBP = 1.6479 USD.

"The dollar was soft throughout the European session but a series of soft data releases on the employment side yet again dented risk appetite. A weak ADP release (179k vs. 198k) and non-manufacturing ISM (52.8 vs. cons. 57.5) have probably severely dented expectations for Friday’s number, but the dollar’s status as a safe haven is still showing, with the currency ending the day on a firm note amid weak equity markets," says Geoffrey Yu at UBS.

The new San Francisco Fed Chairman John C. Williams warned that today’s economy still faced “many pitfalls” and did not anticipate any major rises to the upside in inflation.

Even though he is not a voter, it is clear that even within the regional Fed Governors space, there is a lack of unanimity and the market may still be a few months ahead in their expectations for normalisation, but the situation can yet change rapidly if data permits.

Ahead on Thursday, the BoE and ECB will deliver their policy verdicts for this month.

UBS don’t expect any change from either, but the ECB Press Conference will be interesting as there is a chance “vigilance” will be mentioned – paving the way for a June hike.

"Our central scenario is for a move in July, and the EUR may stay supported in the short term as Trichet uses assertive language," says Yu.