US monetary policy uncertainty in front of Federal Reserve announcement kept the US dollar pinned near five-week lows against a basket of currencies. However, with US economic reports expected to show consumer confidence and house prices at multi-year highs, the US currency could snap back. Cautiousness ahead of Federal Reserve’s announcement and second-quarter US GDP data encouraged investors to overlook solid UK economic data, leaving sterling near four-month lows against the euro with investors still worried about upcoming announcements from the Bank of England.

The euro maintained higher ground against most rivals with markets expecting the European Central Bank to sound a little more optimistic about the eurozone economy in its policy decision. Before that though, markets will examine eurozone economic sentiment index and German inflation data. Currency markets were shaken, with monetary policy signals again driving market movements.

Sterling

The CBI reported that its survey of retail spending, or distributive trades, improved to a January high of +17 in July from +1 in June. Although the data offered more signs of an improving economic recovery in Britain, uncertainty about a statement from the BoE and the central bank’s Inflation Report on August 7 is keeping the British pound pinned near four-month lows against the euro.

US dollar

The US dollar could recover some of its recent losses ahead of US data that analysts expect to show consumer confidence near five-year highs in July and house prices in May rising at their fastest pace in seven years. The data could revive bullish hopes that the Federal Reserve will consider a smaller monetary stimulus plan over the next few months in a first step towards tighter monetary policy. However, the US dollar suffered its third weekly loss, coming away quickly from earlier three-year peaks ahead of Federal Reserve’s policy announcement in which chairman Ben Bernanke is expected to repeat the Federal Reserve’s “low rates for years” message.

Euro

The euro saw little movement and held close to earlier five-week highs against the US dollar but the single currency is expected to find a number of directional signals starting with eurozone sentiment index and German inflation data. US data and Federal Reserve policy statement will probably prove more influential for the euro.

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