* Dollar seen on downward path post-Fed
* ECB, BoE meetings keep focus on European rate policy
* Spanish 5-yr bond auction key for peripheral debt markets
By Carolyn Cohn
LONDON, April 29 The prospect of low U.S.
interest rates for some time is likely to trigger more dollar
selling next week, with upcoming central bank meetings in Europe
serving as a reminder of greater chances of rate rises
The Federal Reserve's promise this week of continued
ultra-loose monetary policy in the world's largest economy has
taken U.S. and global shares to new peaks -- the Nasdaq index
.IXIC hit 10-year highs and the MSCI index of world stocks
.MIWD00000PUS hit its highest in nearly three years.
At the Fed's first post-meeting press conference, chairman
Ben Bernanke also soothed stock markets by saying inflation was
a transitory problem.
The upshot is that the dollar is looking like the carry
trade of choice -- as a low-yielding borrowing tool to buy
higher-yielding currencies -- especially after the European
Central Bank raised rates in April.
The dollar is hitting three-year lows against an index of
currencies .DXY, as well as its lowest since the Bretton Woods
system collapsed in 1973 against the inflation-adjusted version
of the Fed's broad trade-weighted index. The weak dollar and
persistent inflation concerns have propelled gold and silver to
The ECB holds its policy meeting on Thursday, with analysts
seeing a 90 percent probability of no change to current euro
zone rates of 1.25 percent. But they see a 45 percent
probability of a rate hike by end-June.
"Markets are positioned for further interest rate hikes from
the ECB," said Sarah Hewin, head of research for Europe at
"But if we have an indication next week that the ECB is
likely to raise rates in June, that's sooner than the market is
anticipating and would be euro-supportive and dollar-negative."
For POLL-Reuters ECB May pre-meeting poll results, see
For POLL-Reuters BOE May pre-meeting poll results, see
The dollar's fall is also an indication of structural
worries about the U.S. economy, its deficits, its ageing
population and the vulnerabilities inherent in a far-from-secure
reserve currency status.
"The euro is going up because it is the prime reserve
alternative to the dollar," said Neil Mellor, currency
strategist at Bank of New York Mellon.
The euro EUR= has spurted nearly 2 percent since Monday's
close, and analysts expect it to pack on another two cents in
the next week or two, to hit $1.50 for the first time since Dec
The U.S. economy is still showing some signs of life,
however, with employment data on Friday seen giving a further
sturdy boost to non-farm payrolls in April, following a 216,000
increase in March. [ECI/US]
If U.S. and European first-quarter earnings data next week
continue the current trend, they will also support a bright
Of 248 S&P 500 .SPX companies that have reported first
quarter earnings, 78 percent beat or met expectations, and 22
percent came in below, according to data from Thomson Reuters
For the 81 STOXX Europe 600 companies which
reported so far, a slightly less stellar 58 percent beat or met
Major European companies to report first quarter earnings
next week include Siemens (SIEGn.DE) and France Telecom FTE.PA
and banks RBS (RBS.L) and Commerzbank (CBKG.DE).
In the U.S., earnings are due from Kellogg (K.N), Time
Warner (TWX.N) and AIG (AIG.N).
In addition to the ECB's post-meeting press conference,
which takes place in Helsinki, president Jean-Claude Trichet
speaks again at a conference in Finland, alongside his likely
successor, Bank of Italy Governor Mario Draghi, and other
central bank governors.
The Bank of England also meets next week, with an 80 percent
probability seen of no change in rates of 0.50 percent. But
another quarter point is expected on rates by the end of the
Britons go to the polls on Thursday in a referendum on the
way legislators are elected, along with local elections in some
The vote lacks headline appeal but is likely to show up
cracks in the coalition government, which is attempting to push
through tough austerity measures.
"We fear that the UK will experience a long period with poor
growth which can result in a larger rise in the debt burden than
currently anticipated," Danske analysts said in a note.
"There is a good chance that rates will be kept at record
lows for a long time. The weak underlying growth and the tough
fiscal austerity measures crowd out monetary normalisation."
In bond markets, Spain auctions five-year debt on Thursday
as investors continue to fret about the euro zone periphery, in
particular the possibility of Greek debt restructuring.
The worries have punched out peripheral debt spreads against
core German debt. But for now, the euro is proving resilient to
the debt woes.
(Additional reporting by Dominic Lau and Jessica Mortimer;
Editing by John Stonestreet)