USD is broadly lower ahead of the Fed’s two-day meeting next week

  • JPY surges on better-than-expected national CPI data

  • Commodity currencies are flat but remain under pressure as oil prices weaken

USD – The US dollar traded in lower ranges against most major currencies on speculation the Federal Reserve will emphasize its plan to keep interest rates on hold longer. The Fed’s two-day monetary policy meeting will be held next Tuesday and Wednesday. A Wall Street Journal report suggested the US central bank may debate on changing its future guidance on rates. If comments remain dovish, the dollar will tend to trade on the defensive and further losses could depend on the slew of economic data which releases next week that include nonfarm payrolls and the ISM indexes for manufacturing and services sectors. The dollar index has already fallen 0.4% from this morning’s opening session, having hit 81.548, the lowest since June 20th. Despite dollar losses, US consumer sentiment rose in July to the highest level in six years, suggesting that Americans felt better about the current economic climate. Increased confidence along with the growing expectations that interest rates will rise have prompted consumers to pick up the pace of their purchases. The index of buying conditions for durable goods rose to 149 from 143, while 68% of consumers expected rates to rise in the coming year, up from 55% in June. Despite this morning's losses, the greenback is expected to be well supported over the coming weeks on expectations the Fed may scale back bond purchases as early as September.

EUR - The euro weakened slightly against the dollar ahead of the European Central Bank policy meeting next week where analysts expect rates to be held steady. The ECB will probably be done cutting interest rates but may still take other measures to stimulate the economy which is pulling out of the recession. The ECB’s main refinancing rate is already at a record low of 0.5%, and many economists would doubt the central bank will take its overnight deposit rate for banks below zero. The EUR/USD is about 10% stronger since ECB President Mario Draghi vowed a year ago to do "whatever it takes" to save the single currency, calming investors' fears about the Eurozone breaking up. In addition, a recent survey of 70 economists suggested the Eurozone private sector grew this month for the first time since January 2012. A slight sign of a pickup in the economy that supports the EUR/USD value above the 100-day moving average.

GBP - The pound is flat against the dollar today after hitting a one-month high of $1.5442 yesterday as some traders viewed the high point as a profit taking opportunity. Sterling has rallied for three straight weeks vs. the greenback thanks to a string of positive economic data releases, including robust Q2 GDP growth numbers. However, some investors view the rally as weak by historical standards and do not expect the BoE to make any drastic monetary changes in next month’s meeting. With little immediate news flow and data, the markets turn their attention to next month’s releases, highlighted by the quarterly inflation report due out on August 7th.

JPY - The yen surged 1.1% today vs. the dollar today as June’s national CPI data came in a 0.2% year over year, beating expectations of 0.1%. To many investors this is a clear sign that “Abenomics” and the BoJ’s massive easing program is actually working, dampening the likelihood that additional near-term aggressive easing measures will be implemented. The next monetary policy meeting is set for August 7th, where investors will look for further guidance as to whether or not the BoJ plans to revise its economic policy. Next week brings a number of important Japanese economic data releases for the month of June including overall housing spending, industrial production, and retail trade.

Commodities - The Canadian dollar is relatively flat today vs. the US dollar, easing off a five-week high as investors consolidate gains. The currency is partly being pressured by overall weaker oil prices and continued concerns about a growth reduction in China. Look for CAD to remain range-bound ahead of next week’s Fed meeting and the release of Canada’s economic growth data. Meanwhile, the Australian dollar held flat against the US dollar and traded in narrow ranges this week as CPI data met expectations. Meanwhile, the New Zealand dollar weakened 0.2% against the greenback after taking profit from yesterday’s rally that reached its highest level in over a month. Investors will be eying Australia’s 2nd qtr. producer prices and building approvals released next week to gage the relative strength of the central bank’s current policy and direction of the AUD/USD.

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