The Dollar Dropped after the FOMC Statement

August 1, 2013

The dollar was traded upwards on Wednesday after the release of strong employment data and GDP for the second quarter. However, then it lost all positions after the publications of FOMC Statement by the end of the meeting. The monetary policy was kept unchanged but there were no hints on tapering off of QE in September, which was expected by some market participants.

Inflation and unemployment target levels were kept unchanged at the same levels of 2% and 6.5% respectively. The decision was approved on 11-1 votes with the president of the Federal Reserve Bank of Kansas City Esther George dissenting from the majority opinion as she was still concerned about financial imbalances and inflation which may result from the continuation of QE.

The text of the FOMC Statement itself almost wasn’t changed. Although it was marked that economic activity in the country during the first half of the year was raised at a modest rate, not moderate one – as the economic growth was determined before. Besides, it was said that a stable low inflation, which has been lower than the target 2% level for a long time, can jeopardize the country’s economy. Due to weak inflation the terms of QE tapering off may be put off for a longer period of time.  

In the US rather strong data were released. According to the report of the research organization ADP Employment Change increased by 200 thousand in July while a growth only by 180 thousand was forecasted. The data for June were also revised upwards. Now all the market attention is drawn by the official employment data which will be published on Friday.

                                  ADP Employment Change

 

 

The US economic growth rate in the second quarter, according to the first estimate, accounted for 1.7% at an annual rate while a growth only by 1% was expected. Consumer spending, which is up to 70% of the US GDP, grew by 1.8% in the second quarter, which has exceeded the growth expectations by 1.6%. Chicago PMI, which grew to 52.3 p. in July with the forecasted growth to 53.7 p., turned out a little worse.

The released euro-zone good non-farm payrolls supported the euro on Wednesday, which allowed closing the day with a slight growth despite weak retail sales data in Germany, which fell by 1.5% m/m. Unemployment Change in Germany decreased by 7 thousand unexpectedly in July while the reading was forecasted to maintain, which testifies the acceleration of economic growth rate of the largest European economy. Unemployment rate in the euro-zone hasn’t changed in comparison with the revised May reading while its growth to 12.2% was expected. Unemployment rate also dropped in Italy by 0.1% to 12.1% against the forecasted growth to 12.3%.

The report on Canada’s GDP published on Wednesday managed to support the Canadian dollar. According to Statistics Canada, the country’s gross domestic product rose by 0.2% in May from April. Canadian economic growth has been witnessed for the fifth month in a row. At an annual rate the GDP grew by 1.6% and the data coincided with the expectations. The growth in retail sales and wholesale trade was evened by the weakness in the commodity sector. On the contrary, AUD continued falling and broke through a significant level of July support at 0.90.

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