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Dollar Weakened Before Fed’s Minutes - 30.8.2011

US Dollar The dollar weakened against its major counterparts, except the refuge Swiss franc and Japanese yen as investors turned to riskier assets after the Federal Reserve Chairman Ben Bernanke signaled that the US economy isn’t weak enough to warrant additional stimulus. Yesterday surprisingly favorable economic data revealed that consumer spending growth in July exceeded expectations as households may have dipped into savings. Spending climbed by 0.8%, showing the biggest gain since February, after a previous 0.1% decline, Commerce Department figures showed yesterday. At the same time personal income advanced in July by 0.3%, as it was expected, after 0.2% in June. Today we also expect important economic data to be released. According to preliminary estimations, the US consumer confidence index, which reflects consumers’ assessment of business conditions, employment and incomes, may have dropped in August to 52 from 59.5. However, after more favorable than estimations yesterday’s data, this figure may be more positive as well. Investors will be also focused on today’s release of the Federal Reserve FOMC meeting minutes from August 9. The dollar meanwhile hit yesterday its maximum since the end of July against the Swiss franc (0.8240), but fell to its lowest levels in August against the Canadian dollar (0.9739), the Australian dollar (0.9358), while the euro touched a two-month high against the greenback at 1.4550, reflecting a switch in risk taking mood. Euro The euro gained support against the US dollar and the Swiss franc on positive investors’ sentiment. The single currency strengthened to 1.4550 yesterday against the dollar and remained above 1.4500 in Asian trading hours today. However, demand for the euro was limited after European Central Bank President Jean-Claude Trichet said the bank may reconsider inflation estimations to the downward. While euro-zone inflation is likely to remain above the bank’s 2% target in the months ahead, “risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released in early September,” Trichet said. Yesterday reports showed German CPI index decelerated to 2.3% in August from 2.4% in July. Japanese Yen The yen is still traded close to its record highs against the greenback. According to the figures, Japan’s jobless rate rose for a second month and retail sales dropped, showing the economy is failing to spur recovery after the March 11 earthquake. The unemployment rate rose to 4.7% in July as payrolls fell by 40000 from a month earlier, the statistics bureau said today. Seasonally adjusted retail sales figures were also weaker than estimations, showing a drop by 0.3% in July instead of 0.5% and following a 2.9% increase in June. Unadjusted figures advanced by 0.7% in July from a year earlier, but that was less than the 1.3% gain that analysts expected. The Parliament also voted today to assign the former Finance Minister Noda to be the new Prime Minister after Naoto Kan’s resignation. Lawmakers expect he will cope with economic recovery objectives in conditions of advancing yen and global slowdown. Pair USD/JPY traded in Asian trading hours today in a narrow range 76.68-76.97.
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