The dollar was unable to secure strong buying interest on Monday with inevitable market caution ahead of the Tuesday US Federal Reserve interest rate decision…. …

The US currency failed to hold gains beyond 1.20 and weakened to 1.2065 on Tuesday after a stronger than expected German IFO index report which rose to 105.4 in March from 103.4.

As the two-day Fed meeting got
underway, markets were still pricing in a 100% probability of another 0.25% rate
increase on Tuesday to 4.75% which would be the 15th consecutive
increase. The dollar will be very vulnerable if there is no increase but,
assuming that there is an increase, the statement will receive most attention.
Given that markets are also expecting a further rate increase in May, the dollar
will need a tough and uncompromising stance from the Fed to make significant
headway. The dollar will also drop sharply if there is no rate
increase.

The currency will also be vulnerable
if there is a dovish statement, especially if there is a clear hint that rates
have peaked. Volatility will be a high risk after the decision, especially with
the uncertainty triggered by a new chairman and two new board members. The most
likely outcome is that the Fed will signal that further increases might be
required, but the Fed is likely to signal that rates should not need to rise
above 5.0%.

www.investica.co.uk