US dollar to soften on speculations of Fed pausing rate hike after May

05/01/06 - Investica

NEW YORK, May 1 (newratings.com) – Analysts at Investica say that speculations of the Fed pausing its monetary tightening policy after the hike in May are likely to weaken the US dollar in the near term.

In a research note published this morning, the analysts mention that US GDP growth accelerated to 4.8% in 1Q06 from 1.7% in 4Q5, with significant strength in business investment. The core PCE price deflator fell in 1Q06 to 2.0%, taking the annual rate to 1.9%, which is marginally short of the Fed’s unofficial 2.0% ceiling, the analysts say. Employment costs rose by a lower-than-expected 0.6%, which would abate concerns surrounding inflationary pressures resulting from the tight labour market, Investica adds. The University of Michigan consumer confidence and the April Chicago PMI index fell in April, which keeps the US economy on track for a slowdown in growth and lower inflationary pressures going ahead, the analysts add. These factors are likely to fuel speculations of the Federal Reserve not increasing the interest rate following the hike to 5.0% in May, according to Investica.