• USD pushed higher ahead of the Fed’s two-day meeting next week

  • EUR and Sterling held close to current ranges ahead of ECB and BoE meetings

  • Commodity currencies mixed on dovish RBA comments

USD - The U.S. dollar strengthened against the euro and the yen as investors scaled back long positions ahead of tomorrow’s Federal Reserve's policy announcement. The dollar pushed higher despite a drop in consumer confidence. The Conference Board’s index of consumer sentiment for July decreased to a reading of 80.3 from a revised reading of 82.1 the prior month and missed expectations for a reading of 81.3. The move lower comes after the figure climbed to a five-year high last month. The market will turn its attention to tomorrow’s Fed announcement where expectations are for the Fed to hold rates steady, however, analysts will be looking for any hints as to when the Fed may start to scale back their stimulus program later this year.

EUR – The euro initially pushed higher against the dollar, but lost its momentum and pared its gains after the release of better than expected German CPI data. The Consumer Price Index in Germany beat expectations by one percentage point, advancing 1.9%. In other news, Spain’s Q2 GDP contracted to 1.7% compared to a 2.0% decline in the previous quarter. The drop was caused mainly by weaker domestic demand, which was partially offset by a positive contribution of external demand. The market will turn its attention to tomorrow’s Eurozone CPI release and the ECB meeting later this week. Expectations are that the ECB will reaffirm their commitment to low rates. Look for the euro to hold close to recent ranges ahead of the CPI data release and the ECB meeting.

GBP – Sterling held close to recent levels against the dollar and euro before the BoE meets later this week. The BoE's monetary policy committee will discuss its commitment to extending lower interest rates. Analysts will be looking closely to new central bank governor Mark Carney for additional plans for the direction of future monetary policy. Traders will also turn their attention to next week's Quarterly Inflation Report, when the BoE is expected to provide "forward guidance” on the inflation picture and state of the economy. Look for sterling to hold close to current levels ahead of the central bank meeting and inflation report due out next week.

JPY - The yen initially weakened against the dollar but retraced against the greenback, as weak industrial production data offset the 1.5% recovery in the Nikkei Index. Household spending and industrial production both missed expectations, falling .4% y/y and 3.3% y/y respectively, vs. forecasts of + 1.4% and -2.6%. However, the jobless rate did slightly surprise to the upside, falling to 3.9% vs. expectations of 4%. Look for the yen to remain relatively flat ahead of the Fed’s announcement tomorrow following its two-day monetary policy meeting.

Commodities - The Canadian dollar held steady close to a five-week high vs. the greenback, continuing to receive support from better-than-expected industrial and retail data for the month of June. Look for CAD to hold close to current levels ahead of the Fed’s announcement tomorrow. The Australian dollar slid and was down 1.5% in early trading vs. the dollar after dovish comments by the head of Australia’s central bank lead many investors to believe further interest rate cuts are on the horizon. While the RBA is not set to officially meet until next week, Governor Glenn Stevens has already stated that current inflation allowed some scope for more easing, further increasing expectations of a rate cut. In addition, Building Approvals for the month of June fell short of expectations, showing a surprise 6.9% drop, yet another sign pointing towards additional monetary easing. Meanwhile, the NZD has held firm vs. the dollar as traders continue to weigh the more hawkish tone of the RBNZ’s comments during last week’s policy meeting with statements from policymakers that “the New Zealand dollar remains high.”

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