Tuesday July 30, 2013 - 23:53:43 GMT
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Reuters - www.reuters.com
FOREX NEWS - Dollar edges up ahead of GDP data and Fed policy decision
* U.S. Q2 GDP seen up 1.0 percent
* Fed meeting in focus as ECB, BoE also meet this week
* U.S. economic performance seen ultimately buoying dollar
* Aussie falls on RBA comment, Swedish crown drops on GDP
By Julie Haviv
NEW YORK, July 30 (Reuters) - The dollar eked out modest
gains on Tuesday as the market waited to see whether a
much-anticipated statement from the U.S. Federal Reserve on
Wednesday would signal it is ready to wind down its stimulative
asset-purchase program later this year.
The statement is to be issued by the Federal Open Market
Committee, the Fed's policy-making arm, after its two-day
meeting. The U.S. central bank now makes purchases of $85
billion a month in bonds.
Fed Chairman Ben Bernanke said in May the Fed may start
phasing out its bond-buying plan in September, fueling a dollar
rally. Bernanke, however, backtracked a few weeks ago, saying
quantitative easing will stay as long as the economy remains
weak and inflation low.
Less stimulus could prod U.S. interest rates higher, making
the dollar more attractive to investors.
"I think overall the expectation is that the Fed will still
taper its asset buying this year," said Joe Manimbo, senior
market analyst at Western Union Business Solutions in
"It would take a big data miss in U.S. payrolls and GDP to
derail that expectation and I don't foresee any big negative
An advanced reading of second quarter gross domestic product
in the United States, the broadest measure of aggregate economic
activity, is due for release on Wednesday. GDP is expected to
have expanded by just 1 percent in the second quarter, down from
a 1.8 percent rise in the first, according to a Reuters poll.
Despite second quarter weakness, many experts believe the
U.S. economy will outpace the economies of other countries,
which should ultimately bode well for the dollar.
"Going forward, it our view that the U.S. economy will
outperform much of the rest of the world in terms of economic
growth," said Mark Frey, vice president and chief market
strategist at Cambridge Mercantile Group in Vancouver.
A stronger U.S. economy, along with rising yields and
shrinking money supply, will provide significant support for
the dollar for the foreseeable future, he said.
"There will unquestionably be significant volatility, but
from a pure market perspective, economic decision makers should
be preparing themselves for a sustainably much stronger
greenback in the months and possibly years to come," Frey said.
While economic figures on Tuesday such as U.S. house prices,
which rose 1 percent in May, and consumer confidence, which came
in shy of expectations, were not robust, they still depicted an
improving U.S. economy.
In late afternoon trading, the dollar index was up 0.3
percent at 81.864, rising for a second straight day. The
index was well above Monday's five-week low of 81.499 and chart
support at 81.524, the 200-day moving average.
Against the yen, the dollar was up 0.1 percent at 98.04
Part of the dollar's gains could also be attributed, traders
said, to speculation that President Barack Obama, in a speech
later today in Chattanooga, Tennessee, will propose that U.S.
companies pay 5.25 percent on overseas earnings regardless of
whether they repatriate the funds back to the United States.
The euro last traded flat at $1.3264 after hitting a
nearly six-week high just north of $1.33. The euro was helped by
surveys showing improved euro zone economic confidence.
Gains in the euro could prove temporary with the European
Central Bank, at a policy meeting on Thursday, likely to keep
monetary policy loose.
The Bank of England also meets on Thursday, and is likewise
expected to retain its easy monetary bias.
Analysts at Barclays recommended reinitiating short
euro/dollar positions, with a target of $1.28 and stops at
"The broader dollar strengthening trend remains very much
alive," Barclays analysts said, adding that firmer U.S. data,
including monthly jobs figures on Friday, could lead to a
Meanwhile, the Australian dollar fell to a two-week
low of $0.9041 against the greenback, just above a near
three-year trough of US$0.8998 hit in mid-July, after Reserve
Bank of Australia Governor Glenn Stevens said the currency could
fall further and there was room for more interest rate cuts.
It was last at $0.9064, down 1.5 percent.
The Swedish crown lost more than 1 percent against the euro
after data showed the Swedish economy unexpectedly contracted
during the second quarter. The euro
hit a two-week high around 8.7006 crowns and was last up 1.1
percent at 8.6858, according to Reuters data.
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