Fed Faces Key Decision

The Fed decision will be crucial and the dollar will need a Fed shift to a more neutral policy to make further headway

The dollar has edged stronger over the past 24 hours despite subdued US data. The Case-Shiller 20-city house-price index recorded a 12.7% decline in prices in the year to February from a 10.7% drop previously, maintaining fears over the housing sector. Consumer confidence also remained at a depressed level of 62.3 for April from a revised 65.9 in March.

The GDP data will provide the first estimate of the economy's first-quarter performance and a negative figure would reinforce recession fears. The Federal Reserve will need to take a more forward-looking stance and asses whether there needs to be a pause in the process of cutting interest rates. Rising inflation fears will increase the pressure for cuts to be suspended.

There are likely to be divisions within the FOMC and some dissent is likely whatever the rate decision. Nevertheless, the Fed is likely to signal caution over further rate cuts

Given the shift in interest rate expectations seen over the past week, the dollar will find it difficult to make much further headway unless there is a clear suggestion in the statement that the Fed has switched to a more neutral policy.

Investica
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