FOREX-Dollar steady near 6-month peak ahead of GDP and Fed tests

Wed Jul 30, 2014 12:31am EDT

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* Dollar index steady, holds near a six-month peak

* U.S. Q2 GDP, Fed statement next in focus (Updates prices, adds comments)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, July 30 (Reuters) - The dollar hovered near a six-month high against a basket of currencies on Wednesday as investors awaited a Federal Reserve policy decision and U.S. gross domestic product data due later in the day.

Dollar bulls are holding out hope that U.S. second quarter gross domestic product will show the economy has rebounded from a very soft patch and that the Fed will provide some hints on when it will raise interest rates.

The dollar index held steady on the day at 81.215. On Tuesday, it had risen to 81.245, a high last seen in early February. The dollar index is now back in the 81.000/81.482 band that had capped it over the past nine months.

"The dollar managed to mark a number of notable, bullish technical breaks versus its major counterparts despite the fact that Wednesday's Q2 GDP release and FOMC rate decision are likely to impact the greenback specifically - regardless of the outcome," said John Kicklighter, chief currency strategist at DailyFX.

"Speculators' complacency and contentedness will be put to the test."

The euro held steady at about $1.3408, stuck near a fresh eight-month low of $1.3404 that had been set on Tuesday.

Worries about geopolitical tensions in Ukraine and concerns that sanctions against Russia could have a negative economic impact on Europe have helped weigh on the euro recently, said Bart Wakabayashi, head of foreign exchange for State Street Global markets in Tokyo.

"This is something that everyone has been saying for six months or so now, but there has recently been some confirmation of that," Wakabayashi said, adding that such issues were unlikely to go away soon.

A survey released late last week had shown that German business sentiment fell to its lowest level in nine months in July, adding to signs that Europe's largest economy is slowing and suggesting that firms are worried about the crises in Ukraine, Iraq and Gaza.

On Tuesday, the European Union and the United States announced further sanctions against Russia, targeting its energy, banking and defence sectors in the strongest international action yet over Moscow's support for rebels in eastern Ukraine.

Against the yen, the dollar hovered near a three-week high ahead of the Fed policy decision and U.S. GDP data.

The dollar was flat on the day at about 102.09 yen after having risen to 102.16 yen on Tuesday, its highest level since early July.

Analysts polled by Reuters expect the U.S. the economy to have grown at an annualised rate of 3.0 percent in the second quarter, turning around from a 2.9 percent contraction in the first three months of the eyar due in part to a harsh winter.

Traders said anything less than 3 percent will be taken as a negative and could send dollar bulls packing.

The Fed, meanwhile, is all but certain to cut its monthly bond-buying programme by another $10 billion, but the focus has already shifted to when it will start to lift interest rates.

This week's meeting, however, will conclude with only a statement and none of the theatre associated with a news conference, leaving markets to go through every sentence with a fine-tooth comb for subtle changes. (Editing by Eric Meijer & Kim Coghill)

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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