Dollar Slumped vs Euro, Sterling

The dollar fell sharply against the euro and sterling on the disparity between the Fed and the other two central banks in monetary policy outlook.

The Fed yesterday left its interest rate unchanged at 5.25% as expected. The post-meeting statement pointed out that the inflation is still the Fed¡¯s predominant concern, reinforcing the expectations that the Fed would not cut rate within the year. While on the other side of the world, the European Central Bank and the Bank of England are widely anticipated to lift interest rates at least one more time this year. The euro rose above the 1.35 level versus the dollar, the first time in three weeks. Should the pair stand firmly above the 1.3460-80 support area, further rally may extend to 1.3660 with a near target at 1.3550.

After breaking through the key psychological level at 2 yesterday, the sterling extended its gains to as high as 2.0073 against the dollar on Friday. The currency is supported by the speculation that the Bank of England may raise rates as early as July.