As we wrote last week, the direction of the Dollar may be influenced more by external economic events rather than by internal activity. Accordingly, it would behoove forex traders to direct their attention away from the Fed and towards the Bank of England and the European Central Bank, both of which face important monetary policy decisions later in the month. With regard to the Bank of England, futures markets have priced in a 2/3 chance that rates will be cut by 25 basis points. In the case of the ECB, the markets are expecting rates to be maintained at current levels. However, analysts will be scrutinizing the Banks' respective press releases and monitoring other developments in this area due to the implications for the US-EU-Britain interest rate differential. Reuters reports:
Some analysts think that hawkish comments from Trichet will be brushed aside with weaker economic data leading to the prospect of falling euro zone rates later in the year.
Read More: Pound down, others flat before ECB, BoE decisions
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