Major Currency Pairs Analysis: Anticipating Fed's Minutes

The euro hit a 6-month high against the dollar on Tuesday after a Federal Reserve barometer of U.S. economic activity disappointed investors and dashed expectations held by many that monetary stimulus measures would begin to taper in September. The data sparked a dollar selloff by keeping expectations alive for many that the Federal Reserve will begin tapering stimulus tools in December as opposed to September, when the Fed will hold a policy meeting anew. Stimulus programs such as the Fed's $85 billion in monthly asset purchases tend to keep the dollar weak to spur recovery by keeping long-term interest rates low. Trading was edgy, as the Fed will release the minutes of its July policy meeting on Wednesday, which many hope will offer more definitive clues as to when asset purchases will begin to unwind. Hit-or-miss economic indicators have fueled uncertainty recently as to when the Fed will announce plans to scale back stimulus tools.

EUR/USD" width="624" height="468">


GBP/USD

The pound remained near its two-month highs against the U.S. dollar on Tuesday. As markets awaited the minutes of the Federal Reserve's latest policy meeting uncertainty over the future of the bank's stimulus program persisted. Investors were looking ahead to the minutes of the Fed’s July meeting, due out on Wednesday, for further indications as to when the central bank may start to taper its $85 billion-a-month stimulus program. Expectations that the Fed may begin tapering as soon as next month were boosted after data last week showed that U.S. weekly jobless claims fell to an almost six year low. Fed Chairman Ben Bernanke has said that the decision to start tapering will depend on whether economic data is strong enough. Meanwhile, demand for the pound remained supported after better-than-expected data last week on U.K. jobless claims and retail sales boosted the outlook for the economic recovery.


GBP/USD" width="624" height="468">


USD/JPY

The dollar fell against the yen on Tuesday as investors avoided the greenback on the day before the release of the Fed's minutes from its July policy meeting. Hit-or-miss economic indicators over the past several weeks have fueled uncertainty as to when the Fed will announce plans to scale back stimulus tools. With solid data prompting investors to trade on a September start date for "tapering", and weaker data sparking others to bet on a December start date. Trading was quiet on Tuesday, as most investors remained camped out in safe-haven yen positions to await the release of the Fed minutes on Wednesday. Elsewhere, the Federal Reserve Bank of Chicago’s national activity index for July came in at -0.15 from a revised -0.23 in June. Though the number came in much worse than market expectations for a -0.10. The data weakened the dollar by keeping expectations alive for many that the Fed will begin tapering stimulus tools in December as opposed to September.

USD/JPY" width="624" height="461">


USD/CAD

The U.S. dollar rose to session highs against the Canadian dollar on Tuesday, as ongoing uncertainty over how soon the Fed will start to phase out stimulus measures sparked widespread risk aversion. Expectations that the Fed may start to unwind its asset purchase program as soon as September sparked weakness in global equities markets on Tuesday. Investors were looking to the minutes of the Fed’s July meeting on Wednesday for further indications as to when the central bank may start to pull back its asset purchasing program. Fed Chairman Ben Bernanke has said that the decision to start tapering will depend on whether economic data is strong enough.


USD/CAD" width="624" height="468">