Forex Market Update: U.S. Dollar Trades Broadly Lower

The U.S. dollar traded broadly lower on Monday after weaker than expected first quarter GDP data (released on Friday) raised expectations that the Federal Reserve will keep continuing its monetary easing measures to shore up the economy.

At around 8:30 a.m. EST, the WSJ $ Index was down 0.40% at 73.31. The euro gained 0.41% against the dollar to trade at $1.31.03. The greenback fell 0.19% against the yen to trade at 97.79.

Earlier on Friday, the U.S. first quarter GDP data (preliminary reading) showed that the economy expanded at 2.5% annualized rate compared to analysts’ estimation of 3%. However, the growth rate was faster than fourth quarter’s, when the GDP rose merely by 0.4%, annualized rate.

The unexpectedly weak U.S. economic data will probably hold back the Federal Reserve from squeezing or completing halting its monthly $85 billion worth, bond purchase program. Speculation is rife that the Federal Reserve will continue with its quantitative easing (QE3) by the year-end.

The Federal Reserve’s policy rate meeting (FOMC) kick-starts on Tuesday and the decision will be out on Wednesday. Central bank’s accommodative monetary policy spurs inflationary concerns which in turn prompt investors to look for higher yielding currencies.

Meanwhile the euro gained on Monday as speculation of more monetary easing from the ECB subsided while an end to political stalemate in Italy also lifted the common currency. According to Reuters, (poll conducted last Thursday), only 43 out of total 76 economists polled expected that the ECB will cut benchmark interest rate by 25 basis points.

“Last week it was all go, go go – everyone was factoring in a rate cut…There’s a bit of a reconsideration now, and a look at the reasons why the ECB may decide just to make no move,” said  Sarah Hewin, senior economist at Standard Chartered Bank, according to Reuters.

In Italy, the newly elected coalition government is expected to announce series of economic-recovery measures, this week.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.