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US Dollar Edges Lower ahead of Fed Minutes

H.S. Borji
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US Dollar Edges Lower ahead of Fed Minutes

US dollar was trading lower against a basket of currencies Wednesday as yields on long-dated US Treasuries rose modestly, while the markets awaited the minutes of the June 17-8 Federal Reserve policy meetings.

The US dollar index, a weighted average of the greenback’s performance against six commonly traded peers, declined 0.17 percent to 80.04. The dollar has been drifting lower since Monday as investors looked past last week’s impressive jobs report.

US nonfarm employment increased 288,000 in June, the Labor Department reported last week, as the unemployment rate fell to 6.1 percent.

The greenback was under pressure in the early part of the week as Treasury yields declined.

The dollar rebounded against the Japanese yen after two consecutive days of declines sent the USDJPY pair below the 102.00 handle. The USDJPY continued to decline Wednesday prior to rebounding, as the pair tumbled to an intraday low of 101.44.

The USDJPY consolidated at 101.70, climbing 0.13 percent. The pair faces initial support at 101.40 and resistance at 101.83, above the 200 day simple moving average.

In Japanese data, machine tool orders increased at an annual rate of 34.2 percent in June, following a gain of 48.7 percent the previous month, the Japan Machine Tool Builders’ Association reported today.

Japan’s Ministry of Finance will report on foreign investment in Japanese stocks in the Asian session.

Meanwhile, the Cabinet Office will report on machinery orders for the month of May.

The United States has no major data releases scheduled for Wednesday.

The most compelling release of the day will come this afternoon when the Federal Reserve publicizes the minutes of the June Federal Open Market Committee policy meetings. The Fed left interest rates unchanged at the June meetings and said long-term borrowing costs will probably trend below the historical average. However, policy makers felt the pace of recovery warranted further stimulus cuts, as the Fed pared asset purchasing by another $10 billion.

Given the Fed’s subdued outlook on economic growth and interest rates, some market analysts are expecting a dovish reading of the June 17-8 minutes. The dollar could be vulnerable to sharper losses should policymakers strike a dovish tone.

Based on the Fed’s latest economic projections, economists are forecasting the first rate hike to materialize in the middle of 2015. However, the outlook on long-term interest rates suggests policymakers won’t rush to raise the cost of borrowing during the recovery.

In other trading, the euro edged higher versus the dollar, as the EURUSD climbed 0.16 percent to 1.3633. The pair breached the 20-day average, leaving 1.3638 as the next target. The pair is likely supported at 1.3594.

Cable was virtually unchanged Wednesday, as the GBPUSD held its ground at 1.7130. The pair face faces initial support at 1.7096 and resistance at 1.7160.

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