- USD broadly stronger as market awaits FOMC minutes
- EUR weaker after hitting a 6-month high vs the dollar in yesterday’s session
- Commodity currencies broadly weaker as emerging markets struggle
USD – The dollar is slightly stronger against most major currencies as markets prepare for today’s release of the Fed minutes from the central bank’s July meeting. Investors will be looking for hints as to whether or not the Fed will start to scale back its $85bn bond-buying program at its next FOMC meeting. If a more hawkish tone in favor of a September taper is detected, the dollar should generate some strength, while a dovish tone could weigh on the dollar. The consensus view is that the Fed will in fact begin cutting its bond purchases next month, but some analysts caution that any signs of Fed concerns about low inflation or a further improvement in the labor market could send the dollar lower. The dollar index was up 0.2% against a basket of currencies at 81.12, but still near Tuesday’s 80.754 level, a two-month low. Meanwhile, US existing home sales for July jumped 6.5% m/m, reaching its highest level since 2009 and easily beating expectations of a 1.5% m/m improvement.
EUR – The euro is down 0.3% today, trading back below the key 1.34 level after hitting a six-month high vs. the dollar during yesterday’s trading session. While the euro is one of many major currencies that has benefited from recent capital outflows from emerging markets, a further rise in the single currency is somewhat capped by the ECB’s commitment to keep rates at current record lows for the foreseeable future and potential tightening by the Fed. Later this week brings the release of important Eurozone economic data, including Market Manufacturing PMI tomorrow and GDP growth on Friday.
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GBP – The pound hit a two-month high vs. the greenback in early trading today after a CBI survey showed an improvement in factory orders, yet another positive sign that the UK economy is recovering. Sterling has seen quite a rally during the month of August, up 3% against the dollar and 2.4% against the euro as improving economic data has led many traders to believe the BoE may raise interest rates sooner than expected.
JPY – The yen fell against the US dollar after BoJ Governor Kuroda stated that he will not hesitate to implement further monetary stimulus if downside risks to the economy increased. The central bank is in engaged in discussions over whether to proceed with a planned two-stage sales tax hike from 2014 or elect for a more moderate rise to withdraw from an economy that is slowly recovering. Japan’s economy grew for three straight months in April-June as PM Abe’s policies enhanced sentiment and encouraged consumer spending however had an unexpected fall in capital expenditure, creating doubts the economy can endure the pain from the planned sales tax hike next April.
Commodities Currencies – The Canadian dollar weakened to a five-week low against the US dollar with pressure coming from the fate of emerging markets because of its reliance on the export of natural resources. Like the CAD, both the New Zealand and Australian dollar continued to decline due to falling Asian stocks caused by investors pulling away from commodity currencies. A significant drop in Indonesia’s currency, along with a spike in the euro, is also playing a large role in the loss of the Antipodean currencies. In addition, the kiwi remains under pressure following the RBNZ’s new lending limits that was announced yesterday.
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