Robust second quarter GDP data from the US economy and forecast-beating manufacturing data from China have put currencies on a steady and more risk-friendly path ahead of a second round of key central bank announcements.

The US dollar rallied strongly after US Q2 growth outstripped expectations although the greenback later fell after the Federal Reserve decided to stick with its monthly quantitative easing plan. The US dollar remains near six-week lows against the euro after a dovish Federal Reserve said that it would stick with its current pace of bond purchases amid concerns about weak inflation and still high unemployment in the US.

Sterling sank to four-and-a-half-month lows against the euro and to its lowest in two weeks against the US dollar on concerns the BoE will also flag its dovish intentions and then follow up with more concrete forward guidance in inflation report.

Sterling

Sterling sank to four-and-a-half-month lows against the euro and to its lowest in two weeks against the US dollar. Worrying currency traders have been expectations that the BoE will again flag its low rate intentions for the foreseeable future as it did with a rare policy statement last month.

US dollar

The US dollar’s GDP-inspired gains evaporated after the Federal Reserve again stopped short of signalling an imminent chance of a reduction in monetary stimulus. The US dollar had made a strong start to North American session after US Q2 growth and a key jobs survey topped forecasts before the Federal Reserve’s policy announcement. Advanced estimates showed the world’s biggest economy grew at an annual rate of 1.7 per cent over the second quarter versus forecasts of one per cent. However, the Federal Reserve later announced that it would hold borrowing rates and keep up its $85billion-a-month of bond purchases to support the economy.

Euro

The euro fell away from a six-week peak against the US dollar after data showed the US economy performed much better over the second quarter than most analysts had expected. But the single currency later bounced back, pushing up towards five-month highs against the British pound ahead of European Central Bank policy decision. Investors learned that euro area unemployment declined for the first time in two years in June, bolstering the euro with hopes that the ECB will sound less dovish than it has in recent meetings.

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