Exchange Rate Forecasts Update: USD, JPY, EUR, GBP, CHF

The street remains generally bearish on USD with the US' fiscal stance, diversification talks by key reserve holders as well as diminished speculations about Fed rate hike being the key driving forces.

Although global economic contraction has shown signs of slowdown in recent months, the road to recovery is still long. At the G-8 summit, world leaders stated that the recovery is too weak for them to consider withdrawing from stimulus measures. In fact, news said that the US has plans for more stimuli which will widen its deficit further. over, the White House's healthcare reform will add more pressure to the situation and the Congressional Budget Office (CBO) forecast the reform will result in a net increase in Federal budget deficits of about $1 trillion in 2010-2019.

Recent economic data were mixed. While surveys such as ISM index showed improvement, employment data were weaker than expected. Together with the Fed's reiteration to keep interest rate low for long period of time, strong speculations about Fed rate hike in early June were not seen anymore. Our forecast is that the Fed will leave current policy rate unchanged until 2011. A low interest rate environment is generally negative for the currency.

Based on ActionForex.com Technical Outlook

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