Dollar posts overnight gains amidst speculation of August rate hike.
June 19th - Although Monday’s Asian session is often a quiet one for currency markets, overnight we’ve seen another run of appreciation by the dollar as the market braces itself for a further 25 point rate hike at the FOMC’s June meeting later next week. This renewed confidence in the greenback has also left the price of Gold under pressure and although we’re still a little way off last week’s three month low of $543/oz, there’s been a significant collapse in prices from mid-May highs of $730. Looking at the longer term picture however, there’s mounting consensus that US rate hikes will pause in the second half of 2006 – mixed data is showing the economy to be under some pressure and with tighter monetary policy expected elsewhere, this prospective convergence of interest rates stands to weigh against the dollar in due course. The ECB caused a little surprise earlier this month with just a straight 25 point hike - some had been expecting more than this so once the regular ECB meeting cycle resumes in August, any further tightening here could squeeze dollar gains. Similarly, expectations of a rate hike at the Bank of England are set to lift cable as the second half of 2006 progresses. Overall, the dollar may have found some upside of late but just how sustainable this is in the long term remains to be seen…
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