Dollar Rebounded on Risk Reduction

The greenback rebounded against the euro and sterling as investors trimmed risk before three central banks hold monetary policy meetings this week. The euro fell off the 1.36 handle and dived down to 1.3516 versus the dollar. The sterling dipped from around 1.9950 to 1.9881.

The Fed is scheduled to announce its interest rate decision tomorrow afternoon 2:15 EST. It is seen holding rates unchanged at 5.25%. If the monetary policy meeting statement sounds dovish on the US economy and inflation, the dollar may weaken against its major rivals.

Meanwhile, the Bank of England and the European Central Bank will meet on Thursday. BOE is expected to lift interest rates from 5.25% to 5.5%, which will put the British rates above those in the United States for the first time since January 2006. ECB is likely to leave the benchmark rates unchanged at 3.75% this time. However, ECB chairman Trichet is widely expected to give a hawkish talk to set stage for a rate increase in June.