• US dollar climbs to 2-week highs on Fed outlook

  • UK retail sales help sterling recover against USD, rise against euro

  • Aussie falls to 3-year low on China data, Fed

USD – The US dollar strengthened against major currencies and looked set to extend gains after the Federal Reserve signaled it would begin withdrawing stimulus this year as the U.S. economy improves. Market participants re-engaged in support for the greenback after Fed Chairman Ben Bernanke (following the central bank's two-day policy meeting that concluded yesterday) said the Fed was likely to end its bond-buying program by mid-2014. The prospect of less quantitative easing and higher interest rates should support the dollar, especially in an environment where some other central banks are moving in the opposite direction.

EUR – The euro fell against the US dollar, with sentiment hurt by surveys showing the euro zone private sector has yet to make a steady recovery. Although the euro zone's private sector slump has eased more than expected this month, a continued slide in new orders suggested a full recovery is still some way off. Markit's Flash Eurozone Composite Purchasing Managers' Index, which makes up around 85 percent of the final reading, rose to 48.9 in June from May's 47.7. Adding to pressure on the single currency is the dollar's resurgence which could put an end to the recent resilience of the euro, potentially pushing it below $1.30 as markets become wary about the prospect of lower European Central Bank interest rates.

GBP – Sterling recovered from a two-week low against the US dollar after UK retail sales for May beat expectations, supporting the view that the Bank of England will not ease monetary policy further any time soon. British retail sales volumes rose 2.1 percent on the month, beating expectations of a 0.8 percent rise. In comparison with a year earlier, sales rose 1.9 percent, adding to evidence of more durable growth in the UK. However, gains may be limited as interest rate differentials move in favor of U.S. government bonds after the Federal Reserve signaled it was ready to begin winding down on its money-printing program.

JPY – The Japanese yen initially gained against the US dollar and then paired its gains since yesterday’s Fed meeting announcement. Also, both Finance Minister Aso and Economy Minister Amari have commented on the G-8, suggesting that PM Abe’s economic policy was well received among world leaders. Domestically, industrial production figures have been revised downward, setting off further weakness following the release of better US economic data.

Commodity Currencies – The Canadian dollar posted its biggest loss in almost a month versus the US dollar after Federal Reserve Chairman Ben S. Bernanke said monetary stimulus that tends to devalue the US dollar could slow this year. Canada’s benchmark 10-year government bonds also fell, with yields rising five basis points and futures on crude oil, Canada’s largest export, tumbled 3 percent to $95.31 per barrel. The Australian dollar slid to the lowest in almost three years after a gauge of Chinese manufacturing contracted and the Federal Reserve signaled an exit from monetary easing. New Zealand’s dollar dropped for a fifth day after data showed the nation’s economic growth slowed more than economists forecast.

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