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Dollar Index Pulls Back ahead of FOMC Meetings


  • Dollar index retraces intraday gains, falling 0.3% to 96.59.
  • Dallas Fed manufacturing index remains negative at -16 in April.
  • FOMC should consider normalizing interest rate sooner, according to Markit.

The US dollar index declined on Monday, erasing intraday gains after the Federal Reserve Bank of Dallas said the oil crash was still weighing on the Texas economy.

The dollar index, a trade-weighted index of the greenback against a basket of six currencies, declined 0.3 percent to 96.59. The index climbed to a high of 97.28 in the European session before reversing.


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In economic data, the Texas manufacturing economy weakened again in April, a sign the oil price collapse was continuing to impact business. The Dallas Fed manufacturing business index came in at -16 in April, a slight improvement from March’s nearly two-year low of -17.4.

The production index – a key indicator of Texas manufacturing conditions – posted its second successive negative reading at -4.7.

Texas manufacturers would be happy to learn that crude prices have improved for three consecutive weeks, reaching fresh 2015 highs on Friday. However, oil prices remain well below competitive levels and are expected to remain on the downside for some time longer.

Federal Reserve Meetings

The Federal Open Market Committee will descend on Washington on Tuesday to set the federal funds rate. Fed officials are widely expected to hold the federal funds rate at 0.25 percent and could indicate that lower interest rates will persist for longer than previously expected. On Wednesday the Commerce Department is expected to announce a significant slowdown in economic activity in the first quarter, giving policymakers more scope to remain on the sidelines.

The FOMC interest rate statement will be released on Wednesday.

Fed Should Consider a Rate Hike Sooner: Markit

While the US economy is projected to grow only 1 percent annually in the first quarter, economic activity will pick up sharply in the second quarter, according to Markit Group, which on Monday released its flash US services PMI.

“The improvement in second quarter economic growth, rising price pressures and strong job creation signalled by the PMI surveys adds to pressure on the FOMC to consider starting the process of normalising monetary policy sooner rather than later at its meeting later this week,” said Markit chief economist Chris Williamson in a statement.

Markit’s US services PMI slowed unexpectedly in April, but showed job growth was the strongest since June 2014. The market research firm expects GDP growth of 3 percent annually in the second quarter.

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