Free Forex Signal

SYDNEY (Thomson Financial) - The U.S. dollar was trading mixed late morning on Monday in a narrow range after firming on Friday as opinion grew that the Federal Reserve might pause in its easing cycle after an expected quarter percentage point cut in the central bank’s target funds rate this week.

At 11:30 a.m. (0130 GMT) the euro was at $1.5633, up from $1.5620 in late New York trade on Friday. The dollar was at 104.72 yen, up from 104.40 yen.

The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday to decide whether to lower interest rates again. It will also issue an updated assessment of the U.S. economy and financial system.

Most investors believe the Fed will lower rates by another quarter percentage point but will also suggest it is gearing up for a pause.

Already, the central bank has incrementally reduced the key federal funds rate by 3 percentage points since last August to 2.25 percent from 5.25 percent. On top of rate cuts, the Fed has been lending more money to banks, while the government is preparing to send out tax rebates.

NAB Capital Markets chief economist Rob Henderson said he expects the FOMC to cut the funds target rate to 2.00 percent.

Despite expectations that the FOMC will then be finished with rate-cutting, Henderson said the market will first have to contend with more bad news on the data front.

He said advanced first quarter gross domestic product (GDP) data due out on Wednesday is forecast to show growth of just 0.3 percent annualised growth though the result could be negative.

On Thursday the April ISM Manufacturing index is expected to fall a touch further to 48.3 while on Friday April non-farm payrolls data is likely to show another up-tick in the unemployment rate to 5.2 percent from 5.1 percent in March and a fall in jobs of 75,000, a slight improvement on the 80,000 jobs lost in March.

On the positive side, tax rebates of $330 to $1,200 per individual are due to be posted on Monday, forming the centrepiece of the federal government’s $168 billion fiscal stimulus package.

Meanwhile, the Bank of Japan is not expected to change its policy rate from 0.5 percent after Wednesday’s policymakers’ meeting though data showing a rise in core inflation was likely to put more focus on the meeting, Henderson said.

John Noonan, a senior foreign exchange analyst at Thomson IFR, said the direction of the foreign exchange market this week would largely be determined by scheduled events.

"The FOMC meeting promises to be a major event in that it is expected to signal the end of the dramatic easing cycle the Fed has been on since the credit crisis stormed through," said Noonan.

He said there was a lot of new-found optimism on Wall Street with many saying that the end is near for the U.S. moving into recession, though this view would be severely tested later in the week when the payroll data is released.

Sydney 11:30 a.m. (0130 GMT)

U.S. dollar

yen 104.72 yen

Swiss franc 1.0349

Euro

U.S. dollar 1.5633

yen 163.670

Swiss franc 1.6181

pound 0.78886

Pound

U.S. dollar 1.9824

yen 207.563

Swiss franc 2.0511

Australian dollar

U.S. dollar 0.9352

pound 0.4718

yen 97.915

New Zealand dollar

U.S. dollar 0.7841

bruce.hextall@thomsonreuters.com