By FXEmpire.com

A softer tone for the dollar was set Wednesday after the Federal Reserve kept interest rates on hold and Fed Chairman Ben Bernanke said he remained willing to buy more bonds should the economy need help.

The USD is broadly weaker as markets in Asia and Europe digest the outcome of yesterday’s FOMC meeting with the Bank of Japan rate decision on Friday.

What’s more, a string of recent data suggesting some softening in the economy has raised concerns about whether the recovery will accelerate in the months ahead. A downturn in Europe could hurt U.S. exports, for instance, and higher gas prices could act as a drag.

The number of Americans who filed requests for jobless benefits was virtually unchanged last week at 388,000, the U.S. Labor Department said Thursday, keeping claims near their highest level of 2012. Claims from two weeks ago were revised up.

An index of pending home sales climbed 4.1% in March to reach the highest level since April 2010, the National Association of Realtors said Thursday. The index rose to 101.4 in March from an upwardly revised 97.4 in February, which represents a 12.8% gain from March 2011. Sales of existing homes during the first quarter were the strongest in five years.

Weaker than expected Eurozone confidence readings are pushing equity markets lower so far this morning. Apart from a flat FTSE100, all of the key European benchmarks are lower and Dow futures are pointing to a drop at the market open. Currency markets don’t quite buy that as most of the major crosses are either up against the USD or pretty much flat since yesterday’s hand-off. Treasuries are rallying with 10s down 3bps, and German 10s are also rallying. Various Eurozone and EU economic confidence measures were released, and all of the surveys imply a deteriorating situation. Overall economic confidence fell from 94.4 in March to 92.8 in April, industrial confidence fell from -7.2 in March to -9 in April, and services confidence fell from -0.3 in March to -2.4 in April. The implication is an overall deteriorating economic situation in Europe. Our UK economics team points out that the UK measure – ironically – posted a 4.2 point surge. While the survey result is somewhat at odds with yesterday’s GDP data which showed that the UK economy contracted in Q1 2011, both overall and industrial sentiment measures in the UK having been heading up – contrary to the downward trend in the Eurozone. At the margins that may hint that next week’s PMIs in the UK could firm further.

April CPI for Germany’s regions was released overnight and implies that month-on-month Germany CPI should come in slightly positive (0.1%-0.2%) and on balance softer than the prior month. The outcomes range from a high of 0.3% in Bavaria to a low of -0.2% in Baden Wuerttemberg (where tuition cuts caused a significant decrease in education costs). The range of annual changes fell within 1.7%-2.1%, with three out of the six major regions showing headline CPI below 2%. Given this inflation situation, it would be difficult for German policy makers to protest ECB rate cuts on the basis of inflation risks.

The RBNZ held its benchmark Overnight Cash Rate at 2.5% and issued a fairly dovish statement. The statement said that:

“Should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings,” i.e. should a high currency continue to act as a disinflationary influence, the RBNZ might desire to lower interest rates thereby weakening the currency and encouraging non-commodity exports. New Zealand CPI is running quite low, with Q1 2012 CPI implying annualized inflation of 2% and year-on-year CPI running at 1.6%, implying that the RBNZ has room to ease policy.

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Originally posted here