The U.S Fed: Between a rock and a hard place

If you’re trying to determine the direction of the next major move in the U.S. dollar, here’s a key question: Do you expect the U.S. economy to spiral lower into deteriorating economic growth or do you expect a bounce-back as housing market conditions begin to improve toward the end of the year?

The answer to that question will, of course, impact monetary policy and subsequently U.S. dollar action. The jury is still out on whether the U.S. Federal Reserve will be forced to ease monetary tightness via a reduction in the fed funds rate later this year. Current forecasts for future Fed policy moves vary widely, ranging from a Fed on hold for the remainder of 2007 to aggressive Fed easing, which could bring the funds rate to 4 percent by year-end.

Even short-term technical forex traders will want to stay abreast of the dates and times of key economic releases, such as the Personal Income and Consumption Report released by the U.S. Department of Commerce — and, of course, Fed meeting dates, as they could inject volatility and knee-jerk reactions into the forex arena.