Treasury - Daily Forex for day 25.05.2005

The U.S. dollar was trapped in a narrow range versus the euro yesterday, with the minutes of a Federal Reserve meeting early this month saying the committee overall saw risks of rising inflation and slowing growth as equally balanced. This led market players to believe that the Fed would continue to raise interest rates at a measured pace. In the eurozone, a German ZEW research institute reported that investor confidence slumped to its lowest level in six months in May, further undermining the sentiment towards the euro. Furthermore, the OECD predicted the eurozone economy would grow by only 1.2% this year, instead of 1.9% previously reported, and called for an interest rate cut. On the other hand, it said the U.S. economy would grow near its potential in 2005. Today, traders will focus on U.S. durable goods report, which is expected to show a rise of 1% in April.

Shadowing Hungarian forint, the crown continued to weaken to fresh 3-week lows against the euro on Tuesday. Fears of rejection of EU constitution in France on Sunday and prospects for profit outflows are weighing on the crown sentiment these days. Moreover, there is a small probability that the CNB could yet again cut interest rates at the upcoming meeting on Thursday.