It was a relatively quiet day in forex markets as traders were mostly looking forward to the Fed statement later in the US session and as UK second quarter GDP figures were in line with estimates.
In the day’s main economic news, the preliminary estimate of UK second quarter GDP came in line with expectations at 0.3% quarter-on-quarter and 1.7% year-on-year. This was on the one hand a slowdown from the previous quarter’s 2% year-on-year growth rate but the quarterly rate improved slightly from 0.2% in the first quarter. The UK Chancellor acknowledged that uncertainty about Brexit was a burden for the country’s economy as he said more clarity on that front would help. The pound managed to broadly hold the 1.30 level against the US dollar and rose to as high as 1.3061. Euro/pound was relatively soft at 0.8922.
The euro was comfortably holding the 1.16 handle against the US dollar following the upbeat German Ifo business survey released the previous day, while the US dollar received a short-term boost from the surprisingly strong consumer confidence numbers which were also out on Tuesday. A rise in German 10-year yields on Tuesday was also supporting the single currency. German 10-year paper was yielding 0.55% on Wednesday from around 0.49% on Monday.
The US dollar stayed within relatively narrow ranges against both the euro and the yen in anticipation of the statement from the Federal Reserve’s rate-setting committee later in the US session. The Fed could comment either on the pace of its future interest rate hikes or on when it would commence to slowly shrink its massive $4.5 trillion balance sheet. Some economists also thought that the Fed could reveal little and choose to give more clues during its annual Jackson Hole Symposium which is held every August. Euro/dollar was last at 1.1627 and dollar/yen was 111.94.
In US data, new home sales for June came in close to expectations at 610 thousand units and also close to the previous month’s starts of 605 thousand (seasonally adjusted, annual rate). As such, the upbeat starts did not impact the dollar much.
Gold managed to recover some of the losses it made the previous day and during today’s Asian session to climb back to $1248 an ounce. In the oil market, weekly crude oil inventory figures showed a much larger-than-expected reduction of 7.2 million barrels compared with analysts’ forecast of a 2.62 million barrels drawdown. Consequently, WTI oil rose to around $48.45 a barrel and was trying to break through the previous day’s high of $48.63.
Looking ahead, traders will of course focus on the FOMC statement later in the day. Thursday is looking relatively quiet for forex markets, with the exception of June durable goods in the US.
