Dollar Trades Higher vs. EUR on Rate Outlook

The U.S dollar held near a 2-½ month high on the EUR and kept a firmer footing against the Japanese yen on Wednesday as the market waited to see if the U.S. Federal Reserve would give any signal on when Interest Rates might begin to rise.

The greenback was near a 1-week high against the Yen before reports forecast to show U.S. housing starts rebounded and consumer prices gained. Traders increased bets that the Fed will raise its policy rate by June as the Federal Open Market Committee (FOMC) began a 2 day rate-setting meeting.

The U.S dollar traded at $1.4542 per EUR from $1.4538 yesterday when it reached $1.4504, the strongest level since Oct. 2nd. The U.S. currency was at 89.58 yen from 89.61 yesterday after reaching 89.95, the strongest level since Dec. 7th.

Fed policy makers are expected to keep benchmark rates steady and retain the vast majority of the forward-looking portions of its statement on the economy due this afternoon. With data pointing to the upside in the U.S. economy, there is a growing speculation that there will be a change in rhetoric on monetary easing. Analysts said investors were keen to close short positions built up in the Dollar all year before 2009 book closings and that this may support the USD for the rest of the week and into next.

Oil Falls again Despite a Weak Dollar

Crude Oil continued its decline for the fourth consecutive trading session following Bernanke's speech and estimations for lower inflation and a weak U.S. economy. The price of Crude ended the day down at $74.14 after an opening price of $75.60. This was a price drop of almost 2%. Today's weaker dollar may have helped to lessen the price drop in Crude.

The price may have also been influenced by weak fundamentals in the Crude Oil market. There may still be an excess amount of supply in the market that has yet to be reduced with lower demand due to the slowing global economy.

The positive from yesterday may be in Bernanke's speech. As long as inflationary pressures are muted, the Fed will continue to hold Interest Rates low. This could be a positive factor for the price of Crude Oil. A higher Interest Rate would be dollar positive, thereby potentially pushing crude oil prices lower.