The Markets are Waiting for the FOMC Meeting Results

July 31, 2013

The dollar was traded upwards on Tuesday against almost all major currencies before the announcement of the FOMC meeting results which will be held on Wednesday. The Federal Reserve is supposed not to reduce stimulus volumes in July but it will clear up further plans concerning the strategy of the exit from the stimulus programs. ScotiaBank experts believe that the FOMC can declare straightly about the reduce of QE3 in September lowering at the same time the target level of unemployment from 6.5% to 6%, its achievement will serve as guidemark for the first rates increase. 

The US data released on Tuesday were rather weak. So, CB Consumer Confidence decreased more than expected in July – to 80.3 points while a drop to 81.1 points was expected. S&P/Case-Shiller Composite-20 HPI rose by 12.2% in May compared with the same period in the previous year while a growth by 12.4% was expected. Although housing price data turned out a little lower than forecasted, price growth was marked in all 20 countries.   

At the same time euro-zone statistics data have been generally positive, which allowed the euro to maintain and not to fall by the end of the day. Euro-Zone Economic Confidence from the European Commission grew in July to its high since May, 2012 and amounted to 92.5 p. against 91.3 p. in prior month. Spanish economy decline rates slowed down – Spanish GDP decrease in the second quarter accounted for only 0.1% after the fall by 0.5% in the previous quarter, which suggests that the recession should be over soon and the economy could return to growth.

Inflation in Germany grew more than expected in July to 1.9% at an annual rate while its drop to 1.7% was expected. German consumer sentiment rose to almost 6-year high in August amid a good situation at the local labor market and moderate inflation. The leading GfK Consumer Climate rose to 7 p. in August compared with 6.8 p. in July.

The yen dropped after the release of weak Japanese data but then recovered. Industrial production in Japan fell by 3.3% compared with the prior month after 6-month growth, which has become the worst reading since October, 2012. Household Spending decreased by 0.4% in June at an annual rate, while a growth by 1.3% was expected. At the same time unemployment rate dropped to its low 3.9% in June since the end of 2008 from 4.1% that maintained a few months in a row.

The Australian dollar slumped after the speech of the RBA Governor Glenn Stevens. Speaking just a week before the next RBA meeting he said that despite the AUD decline, the current inflation couldn’t prevent the further interest rates decrease if it would be necessary for economic stimulus. He added that further fall of the Australian dollar wouldn’t be a surprise. The AUD was also negatively affected by a sharp decline of Building Approvals in June, which fell by 6.9% against the expected growth by 2%. At an annual rate the reading dropped by 13% while no changes were forecasted.   

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