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US dollar index little changed as attention shifts to Fed minutes

H.S. Borji
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US dollar index little changed as attention shifts to Fed minutes

The US dollar index was little changed Tuesday, as a quiet US release schedule kept traders on the sidelines ahead of the minutes of the June Federal Open Market Committee policy meetings.

The US dollar index, a weighted average of the greenback’s performance versus six commonly traded peers, slipped 0.06 percent to 80.17.

The index has been drifting slightly lower since Monday, as the markets look past last week’s impressive jobs report that showed US employment increased by 288,000 in June.

On Wednesday the Federal Reserve will release the minutes of the June 17-8 policy meetings that ended in the central bank reducing the pace of quantitative easing by another $10 billion and leaving the overnight rate at record lows.

The rate decision was accompanied by a summary of economic projections compiled from top Fed policymakers. Central bankers lowered their 2014 growth outlook from close to 3 percent to between 2.1 percent and 2.3 percent, citing a disastrous first quarter that saw the economy contract 2.9 percent annually.

Central bankers also said long-term inflation will probably trend below the historical average of 4 percent, a sign the Fed will be slow to raise interest rates during the recovery.

Based on the latest projections, economists are not expecting a rate hike before mid-2015.

Dissatisfaction with inflation and the overall pace of recovery could result in a dovish reading of the FOMC minutes Wednesday, prompting a broad reversal for the US dollar.

The US has very little in the way of economic data this week. The markets are awaiting consumer credit figures later on today courtesy of the Board of Governors of the Federal Reserve System.

On Friday the Financial Management Service will release last month’s budget statement.

The USDJPY declined for the second consecutive day as longer-term US Treasury yields fell. The USDJPY declined 0.32 percent to 101.55. The pair faces support at 101.51 and resistance at 102.13, just below the 100 day simple moving average.

The dollar was little changed versus the euro as Germany’s trade balance improved. The EURUSD edged up slightly to 1.3609. The pair faces support at 1.3584 and resistance at 1.3618.

Germany’s trade surplus increased from €17.2 billion to €18.8 billion in May, as imports declined at a faster rate than exports.

Economists forecast the trade surplus to fall to €15.7 billion.

The GBPUSD was little changed Tuesday despite disappointing UK factory data. The GBPUSD tread water at 1.7129. The pair is likely supported at 1.7000. Initial resistance is likely found at 1.7161.

UK manufacturing production declined 1.3 percent in May, the British government reported today. That was the biggest drop since January 2013. Industrial production, a broader measure of factory output, declined 0.7 percent.

The USDCAD remained steady after hitting an intraday low of 1.0662. The pair consolidated at 1.0677, down 0.05 percent. The trend line shows initial support at 1.0646 and resistance at 1.0704.

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