The US dollar posted modest losses during today’s session as traders were fixated on tomorrow’s announcement by the Federal Reserve.
The dollar made its highs towards the end of today’s Asian session, but lost ground after that. Dollar/yen, in particular, saw significant profit-taking after the substantial gains of the previous days. From 111.83 the pair fell to as low as 111.23, rebounding to 111.40. Euro/dollar also peaked above 1.20 earlier in the day but was not far from that level at 1.1978. The pound was trying to hold on to the 1.35 mark against the greenback at 1.3498.
The Fed was foremost in the mind of traders as the central bank of the largest economy in the world was expected to announce the starting date of the scheduled reduction of its $4.5 trillion balance sheet of Treasury and mortgage-backed securities. The planned reduction would proceed and build up at a very slow pace so as not to cause a disruption in the markets or a sudden spike in bond yields. No change in interest rates was expected from the Fed, but some hints as to the chances of another hike this year as well as an update of the terminal rate when the hiking process finishes, are expected.
In today’s economic news, the German ZEW investor survey painted an upbeat picture ahead of the German federal elections during the weekend. The ZEW did not help the euro to rally much, as the market seems to need a significant catalyst to push the single currency above 1.20 versus the dollar and make a run for 1.21. There was a Reuters report that temporarily hurt the euro as sources said the ECB would refrain from setting an end date to the asset purchase program during its October meeting, in order to keep the option of extending its QE program’s duration if necessary.
In other economic news, there were a few key releases from the United States. August housing starts fell from the upwardly revised July number but managed to beat expectations, while building permits powered ahead to a 1.3 million annualized pace during the same month. Building permits jumped 5.7% on the month. The US current account deficit remained a source of weakness for the dollar during the second quarter as it worsened to 123.1 billion dollars (from a deficit of 113.5 billion during the previous quarter). Finally, both export prices and import prices increased by 0.6% during August compared to the previous month.
In other currencies, the New Zealand dollar performed strongly on Tuesday while the Global Dairy Trade (GDT) price index came in with an increase of 0.9% compared to the previous reference price 2 weeks ago. Kiwi traders are eagerly anticipating the result of New Zealand’s elections during the weekend.
A speech by President Trump before the UN General Assembly did not move markets much as it mainly seemed to be a repeat of previous foreign policy arguments.
Finally in commodities, gold rebounded a touch to $1309 an ounce, while oil enjoyed a strong rally from Monday’s lows and scaled the $50 a barrel level (WTI US futures) to $50.12.
