Dollar Slumps As Chicago PMI Unexpectedly Dropped

The greenback dropped against majority of its peers after U.S. Chicago PMI unexpectedly fell to its lowest level in 3 years, increasing speculation the Federal Reserve will maintain its bond buying under QE program as policymakers began a 2-day FOMC meeting today.

U.S. Chicago PMI fell to 49 in April, the lowest since September 2009, from 52.4 last month.

Although the single currency traded sideways in Asian morning and rose briefly to 1.3121 ahead of European open, price dropped to session low at 1.3052 in European morning after the released of weaker-than-expected Germany retail sales before recovering to 1.3084. Price jumped in New York morning and rose to an intra-day high at 1.3186 on dollar's broad-based weakness after U.S. Chicago PMI unexpectedly dropped to its lowest level in 3 years. Later, euro pared intra-day gains and retreated to 1.3146 at New York midday before stabilising.

Germany retail sales were reported at -0.5% m/m, lower than forecasts of 0.0%.

Versus the Japanese yen, the greenback remained under pressure in Asia and weakened to 97.61 in European morning before staging a recovery to 97.79 in New York morning. Dollar fell briefly but sharply to an intra-day low at 96.99 after the release of weak U.S. Chicago PMI, however, price pared intra-day losses and rebounded to 97.62 in New York afternoon.

The British pound traded with a firm undertone in Asia and edged higher to 1.5507 ahead of European open. Despite a brief pullback to 1.5474 ahead of New York open, price rallied to an intra-day high at 1.5570 in New York morning on dollar's weakness. However, cable pared intra-day gains and retreated to 1.5529 in New York afternoon before stabilising.

In other news, U.K.'s Chancellor of the Exchequer George Osborne said 'particularly important' that FPC gives due weight to impact of actions on near-term economic recovery.' Italy's Silvio Berlusconi said 'must re-negotiate deficit commitments made with EU; cannot be part of government that does not abolish IMU housing tax.'

On the data front, U.S. consumer confidence is released at 68.1, vs the expectation of 60.8, prior reading is revised to 61.9. EU unemployment in Mar came in 12.1%, worse than the forecast of 12.0%.

Data to be released on Wednesday:

Australia new home sales, manufacturing PMI, UK manufacturing PMI, U.S. ADP employment, manufacturing PMI, construction spending, ISM manufacturing and Fed rate decision.