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US Dollar Edges Lower as Economic Data Fail to Generate Momentum

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US Dollar Edges Lower as Economic Data Fail to Generate Momentum

The US dollar edged lower against a basket of currencies Monday, as investors weighed the latest batches of US economic data against escalating violence in Iraq.

The US dollar index, a broad measure of the greenback’s performance against a basket of six currencies, declined 0.12 percent to 80.48. The dollar index tumbled in the second half of the previous week, as consumer confidence and producer inflation figures missed estimates.

On Monday the Board of Governors of the Federal Reserve said industrial production rebounded sharply in May, led by an uptick in manufacturing and mining. Industrial production increased 0.6 percent in May, following a revised drop of 0.3 percent the prior month. Economists forecast an increase of 0.5 percent.

Industrial production figures came shortly after the Treasury Department said net outflow of US long-term securities totaled $24.1 billion in April, a sign foreign demand for US assets weakened at the start of the second quarter.

In a separate report the National Association of Home Builders said builder confidence rose faster than forecast this month, although sentiment remained slightly below what is considered good building conditions. The Housing Market Index advanced four points to 49, as all three of the index’s major components advanced.

Meanwhile, the US government is reportedly considering military strikes against the Islamic State of Iraq and the Levant, which is sweeping through northern Iraq and targeting Baghdad.

The dollar fell below 102.00 yen Monday, as the USDJPY tumbled 0.17 percent to 101.83. The trend line shows initial support at 101.74 and resistance at 102.24. A test of initial support would expose 101.57, the 200-day moving average.

The dollar edged lower against the euro after revised Eurozone inflation data showed no change to the initial estimate. Eurozone consumer prices declined 0.1 percent in May, the European Commission confirmed today. Year-on-year, consumer prices were up 0.5 percent, matching forecasts.

The EURUSD advanced 0.26 percent to 1.3574. The pair is testing initial support at 1.3573. On the downside, resistance is found at 1.3513, slightly below the intraday low of 1.3515.

The British pound extended its gains Monday, as the bulls pushed through the key 1.70 US level to set a fresh five-year high. The GBP/USD, supported by strong UK labour market data and hawkish remarks from Bank of England Governor Mark Carney, rose to an intraday high of 1.7011. The pair would eventually consolidate at 1.6985, advancing 0.06 percent. The trend line shows initial support at 1.6930 and resistance at 1.7002.

The key to the US dollar this week is the Federal Reserve, which is expected to announce a further reduction in bond purchasing Wednesday. The Federal Open Market Committee is expected to taper asset purchasing by another $10 billion, while keeping its benchmark lending rate at 0.25 percent.

The Fed will also release composite forecasts of GDP, inflation and unemployment over the next two-to-three years that are based on individual forecasts by each Fed governor and each District president. The forecasts will reveal the central bank’s outlook on the economy, which will be closely monitored by the financial markets for clues about future policy.

The markets are speculating whether the Fed could raise interest rates sooner than initially expected. On Tuesday and Wednesday Fed officials will weigh the recent pickup in the labour market against signs the economy might only expand 1 percent annually in the first half of the year. The markets fear that a sooner than expected rate hike could create sharp pullback in the stock market.

The markets generally expect the Fed to keep interest rates at record lows until mid-2015.

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