Fed Comments Halt Dollar Rally

A Dollar rally across the board followed news that the US added 200 000 new jobs in the private sector in July. Last quarter’s economic growth was also stronger than expected, topping economists’ expectations. Gross Domestic Product (GDP) grew 1.7 % annual rate. 1 % was forecast. The rally quickly terminated on Fed’s statement that the economy continues to recover, but still needs further support, giving no indication when to terminate monetary easing.

The published data marked the third straight quarter of GDP growth below 2 %, a pace normally too soft to bring unemployment down. Growth is, however, expected to move faster in the second half of 2013 as the fiscal burden brought on by Washington belt-tightening eases.

Investors first reactions on the data seemed to indicate that they increased the likelihood for an early autumn tapering. Traders betted initially on a stronger Dollar and the green back rose across the board. EUR/USD fell to 1.3218 to bounce back at 1.3278. USD/JPY is also initially stronger at 92.29. Oil and precious metal prices posted immediate losses on the predictions of a stronger Dollar. Brent crude fell below USD 106 a barrel and Gold to 1.317.

This turned on Fed’s latest statement which kept investors guessing. An end to monetary easing would have weakened the stock markets, which have been given strong capital injections due to the bond buying program. Instead the data and Fed's lack of commitment boosted US stock markets as indexes inside the Euro area ended in red. USD/GBP, fell to 1.5133 following the data after trading above 1.53 for the last few days.

Chinese authorities, mindful of the risk of a sharp economic slowdown that could derail their reform efforts, sent their clearest signal yet that they will do what it takes to safeguard growth. China’s main planning agency followed Tuesday up on the Politburo assurances, stating that this year’s growth goal of 7.5 % was safe. Authorities will, if necessary, supply markets with ample funding. The official growth target represents already a 23-year low.