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U.S. Dollar Weakens Ahead Of Fed Meeting

During European deals on Tuesday, the U.S. dollar slumped against most major currencies as traders looked ahead to the Federal Reserve's meeting for clues on when the U.S. central bank will begin to increase interest rates.

The dollar plunged to a fresh record low against the franc, 3-year low against the NZ dollar and 5-day low against the euro.

While economists expect the Fed to maintain low interest rates for an "extended period," investors fear that a surprise decision by the Fed that it plans to end the monetary-easing policy soon may benefit the U.S. dollar and dampen net flows to emerging market economies.

The US dollar is trading at a fresh 3-year low of 0.8056 against the New Zealand dollar with 0.820 seen as the next downside target level. At yesterday's close, the kiwi-greenback pair was quoted at 0.7996.

The U.S. dollar is worth 1.0765 against the Australian dollar, compared to an Asian session's 5-day high of 1.0679. If the greenback weakens further, it may break a record low of 1.078. The aussie-greenback pair closed yesterday's trading at 1.0722.

In economic news from Australia, the Leading Index increased in February by 0.6 percent as exports of rural goods increased sharply.

The Conference Board's Coincident Index, which measures current growth, remained unchanged in February.

Against the Canadian dollar, the U.S. dollar is trading at 0.9524, down from a 6-day high of 0.9565 hit in the Asian session. If the greenback falls further, it may target the 0.951 level. The greenback-loonie pair was worth 0.9548 at yesterday's close.

The dollar that strengthened to 0.8855 against the Swiss franc slipped thereafter and is now trading at a fresh record low of 0.8760. The dollar-franc pair closed Monday's New York session at 0.8812.

Switzerland's trade surplus increased to CHF 5.45 billion in the first quarter, the Federal Statistical Office said. The trade surplus totaled CHF 5.29 billion in the same period of previous year and CHF 4.95 billion in the fourth quarter of 2010.

Meanwhile, the UBS bank said that its consumption indicator for Switzerland increased in March, driven by new car registrations. The indicator rose by 0.21 points from the previous month to 1.66 points. The increase comes after two consecutive months of decline.

The dollar declined against the pound after hitting a 5-day high of 1.6441 at 2:05 am ET. The pound-dollar pair is currently trading near yesterday's close of 1.6497.

Against the euro, the dollar is trading at 5-day low of 1.4641, compared to an Asian session's 6-day high of 1.4495. On the upside, 1.465 is seen as the next target level for the U.S. currency. The euro-dollar pair closed yesterday's trading at 1.4584.

The euro declined early in the Asian session as European Central Bank President Jean-Claude Trichet said that the authorities need to be permanently alert to avoid risks arising from the second round effects of higher energy and commodity prices.

In an interview with Finnish publications Helsingin Sanomat and Kauppalehti, which was posted on ECB's website on Tuesday, he said that "we have risks of second-round effects here and there. We have to be very alert that they do not materialize."

But the dollar largely showed choppy trading against the yen after falling to a fresh 4-week low of 81.58 in early Asian deals. As of now, the dollar-yen pair is worth 81.73, compared to yesterday's close of 81.88.

Looking ahead, the Confederation of British Industry is slated to release Industrial Trends survey results for April at 6:00 am ET.

From the U.S., the Conference Board's consumer confidence index for April and the S&P/Case-Shiller home price index for February are expected in the New York morning session.

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