The US dollar edged higher before the Federal Reserve's monetary policy announcement today. There is increased speculation the Fed will restart quantitative easing again after a sequence of disappointing US economic data releases lead the dollar to continue its downward trend in the recent weeks. Today's gain looks to be a recovery from oversold levels of the dollar against the majors.
In recent comments, Chairman Ben Bernanke suggested that the economic outlook was unusually uncertain and that central bank was not ready to take any action in the near term. Should today's meeting suggests no change in stimulus measures, the dollar may continue its rebound for the near term.
The euro dropped 1% against the dollar before today's FOMC announcement, falling further away from the 1.3200 resistance level. The Relative Strength Indicator suggests that the EUR has hit overbought levels last week, supporting further downside pressure in this week to come. On the data front, French industrial production data for June posted a fall of 1.7% vs. -0.2% eyed.
The British pound traded lower against the majors today following weaker UK housing data. RICS house price balance measure posted the first negative reading this year at -8%. Furthermore, there was a slowdown in sales growth last month. Ahead tomorrow, Bank of England will be releasing its quarterly inflation report tomorrow.
The Canadian dollar dropped to a one-week low against the greenback following a weaker commodities and equities market. The loonie fell 1% against the dollar earlier in today's NY trading session as investors moved away from risk in anticipation of today's FOMC announcement.
The Japanese yen rose after the Bank of Japan kept its benchmark overnight rate unchanged at 0.1%. The yen is benefiting from safe-haven flows today as investors are anticipating US Fed announcement. Furthermore, disappointing economic data out from China today spurred new concerns of a faltering global economy. The lack of comment coming from BoJ addressing the strong yen indicated that further appreciation of the yen may occur if the Federal Reserve decides to further cut interest rates.
Australia and New Zealand's dollars dropped after China's pace of property-price gains and import growth slowed this quarter. China said exports rose 38.1% vs. the previous 43.9%. Imports increased 22.7% vs. the previous 34.1% in June. Property prices climbed 10.3% which is the slowest pace in 6 months. China's data spurred new concerns that the global economic recovery may be faltering, further dampening demands for higher-yielding currencies.
Indications of Overnight rates:
10-Year Treasury Note Yield: 2.83%
Dow Jones Industrial Average: 10602.08 -95.12%
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.