U.S. Dollar Surges; Fed Leaves Rates Unchanged @ 2.0%

U.S. dollar surges to seven-week highs against the euro. The U.S. dollar was on a rampage this morning, soaring against the euro on the hope that the Federal Reserve will strike a hawkish chord at the conclusion of today’s monetary policy meeting. The market expects the Fed to express the need to contain inflation and leave interest rates unchanged. This speculation has pushed the dollar to seven-week highs against the euro, but should the Fed fail to fulfill these hopes the dollar could be set up for a stumble later in the day.

The British pound fell to seven-week lows against the U.S. dollar on news that factory production in the U.K. fell for the fourth month in June. The 0.5% drop in manufacturing output was worse than expected – the market had expected a modest gain.

The Australian dollar sank to four month lows against the U.S. dollar after Reserve Bank of Australia Governor Glenn Stevens said that there is “scope to move towards a less restrictive stance of monetary policy.” In plain English, there is a growing possibility that Australian interest rates have peaked at 7.25% and that rates could come down in the foreseeable future.

The Canadian dollar fell again versus its southern counterpart, hurt by news that oil fell below $119.00 a barrel for the first time since May. Other commodity prices have also moved lower, hurting the outlook for the Canadian economy because commodities account for over half of Canadian exports. The Canadian dollar is plumbing its lowest level since September on the news.