Daily currency report
The US dollar is expected to be at the forefront of currency trading before the Federal Reserve’s highly-anticipated monetary policy announcement. The euro may subsequently lead a rush into riskier currencies but could find itself back under investigation following European Central Bank meeting. The Bank of England is also scheduled to deliver its latest monetary policy decision but is not expected to top up its quantitative easing account; hoping instead that the London Olympics will help stimulate a dwindling British economy.
The Bank of England will make an announcement on its monetary policy position and investors are not expecting the size of the central bank’s money-printing project to be increased from £375 billion. Following last month’s £50 billion top-up, the Olympic Games is anticipated to provide the stimulus injection this time round. That puts sterling in a position to threaten two-month highs against the US dollar which is looking increasingly vulnerable in front of the Federal Reserve’s meeting.
US GDP slowed to an annual rate of just 1.5 per cent in Q2 from the previous period’s revised two per cent growth. Although the advanced data came in as estimated, some investors are worried that with the eurozone crisis squeezing the global economy, the Federal Reserve might take a pre-emptive move to avoid a more marked slowdown by turning its liquidity taps back on.
The single currency surged to three-week highs against the US dollar after President Mario Draghi said the ECB will do whatever it takes to save the euro. The ECB will broadcast its latest monetary policy decision shortly after the Bank of England and investors will almost certainly demand action to support Mr Draghi’s crisis-fighting talk. Sceptics are already selling the euro after subsequent German comments dampened expectations that the ECB will intervene in bond markets again to help rescue Spain.
Traders were back on intervention alert after data showing Japanese inflation turning negative and moving in the opposite direction to a one per cent target. Economic data revealed a 0.1 per cent drop in local industrial output in June to give the Bank of Japan even more cause for concern. For now the safe haven yen is slipping as investors maintain a level of risk-taking in anticipation of more stimulus from the Federal Reserve and European Central Bank.