The U.S. dollar (USD) gained some ground against the other major currencies on Monday after falling last week due to poor economic data. The Australian dollar (AUD) however has risen to a three-month high due to its increasing yield attractiveness and market expectations that the Reserve Bank of Australia is set to raise rates as early as March due to rising inflation. Interest rates are currently already at an 11-year high and with no signs of the economy cooling are expected to continue to climb.
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The Riksbank recently raised interest rates to 4%, against expectations, sending the Swedish krona soaring higher.

The Swedish central bank explained that it has raised the interest rate by 25 basis points to combat rising inflation, adding that there were risks linked to slower economic activity and financial market turbulence.

The bank has kept its options open, by explaining that future monetary policy decisions will be based on data that is released, but did advise that interest rates are expected to remain steady for this year.

The move saw the Swedish krona rise from 6.4275 from a price of 6.4785 prior to the news release.

The US Federal Open Market Committee unanimously decided to raise interest rates by another 25bp during last week monetary policy meeting, taking the fed funds rate to 5.25%. More interestingly, the statement language was a notch more dovish than expected. While the FOMC does not promise anything for the August meeting, the overall message is still that near-term monetary policy remains data dependent, the FOMC is still vigilant on inflation and has retained its tightening bias.
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The Czech central bank (CNB) kept interest rates unchanged last week for the eighth consecutive month, leaving its key policy rate at 2.00%. The decision was broadly expected, as inflation is still well contained. However, we think a restart of the tightening cycle is moving closer.
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As broadly expected, the Polish central bank’s (NBP) Monetary Policy Council (RPP) last week decided in favour of unchanged interest rates, keeping the key policy rate at 4.00%.

The decision to keep rates on hold should clearly be seem in the light of the fact that inflation remains very low - below 1%. That said, the timing of the next rate hike has clearly been brought forward, mainly due to the following circumstances:
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The Slovak central bank (NBS) board meeting ended without any changes leaving the key policy rate at 4.00%. This was broadly expected, especially given the 50bp hike at the May monetary policy meeting.

Today’s decision probably suggests an NBS that is biding its time and waiting for more macro-data on the economy, especially inflation, before moving interest rates.
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The USD drifted higher against major rivals as dealers monitored the outlook for interest rates, while the GBP also weakened on news that a Bank of England policymaker had suddenly died.

The Euro fell to 1.2637 dollars in early European trading from 1.2659 dollars late on Wednesday in New York.

The USD climbed to 115.14 yen from 114.86 yen on Wednesday.

In Asian trading, the USD had extended losses ignited Wednesday after European Central Bank chief Jean-Claude Trichet raised expectations for further rate increases in the eurozone.
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Bank of Japan governor Toshihiko Fukui has opened a policy meeting with a cloud hanging over him in a scandal seen as weakening his credibility as he moves to end five years of zero-interest rates.

Opposition lawmakers have called for Fukui’s resignation, saying he was unethical to have kept an investment in the fund of controversial manager Yoshiaki Murakami who was arrested on insider trading charges.
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Japan’s government has urged the central bank to maintain zero interest rates to allow the economy to recover as fears of a slowdown in US growth battered global stock markets.

“We hope the Bank of Japan will support the economy with its monetary policies,” Chief Cabinet Secretary Shinzo Abe told reporters.
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Unemployment in Australia has fallen to its lowest level in 30 years, sparking market fears of a further hike in interest rates to curb inflationary pressure and a massive drop in stocks.
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The ECB considered raising its key interest rates by half a percentage point at its meeting, but the “overwhelming majority” of the bank’s governing council deemed a quarter-point hike more appropriate, president Jean-Claude Trichet said on Thursday.
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Bank of England (BoE) policymakers are predicted to maintain British interest rates at 4.50 percent on Thursday for the 10th month in a row.

The decision-making body of the BoE, the Monetary Policy Committee (MPC), will likely freeze the “repo” rate, at which the central bank lends to commercial banks, according to a poll of 35 forecasters by AFP’s financial news service AFX News.
However, economists are speculating that the cost of borrowing could rise as soon as August to keep inflation in check.
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The European Central Bank is certain to raise its key interest rates for the third time in six months when its meets in Madrid later this week, analysts have said, with ECB watchers merely speculating about the size of the expected move.
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The USD rose sharply against major currencies after US new homes sales data came in well above expectations, suggesting that US interest rates could be heading higher.

US new home sales rose by 4.9 pct in April to 1.20 mln units, the highest level so far this year and well above analysts’ expectations for a fall to 1.15 mln, figures showed.
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