July 31, 2013 / 5:27 PM / 4 years ago

FOREX-Dollar gains on unexpectedly strong U.S. data; Fed looms

4 Min Read

* U.S. GDP grows 1.7 percent in 2nd quarter, boosts dollar
    * U.S. private sector adds 200,000 jobs in July
    * Markets await Fed decision at 2 p.m. (1800 GMT
    * Aussie dollar falls on RBA Stevens' comments

    By Julie Haviv
    NEW YORK, July 31 (Reuters) - The dollar on Wednesday
rebounded from a one-month low against the yen as upbeat U.S.
economic growth and private-sector jobs data served to cement
forecasts that the Federal Reserve will start to scale back its
asset-buying this year.
    The greenback, however, was on track for a second
consecutive monthly decline against a basket of major
currencies, with the euro gaining for a second straight month.  
    A report showing the U.S. economy grew at an annualized clip
of 1.7 percent in the second quarter, surpassing the median
forecast for a rise of 1.0 percent, supported the dollar. Also,
the U.S. private sector added 200,000 jobs this month when the
market was expecting 180,000. 
    "This morning's data is an encouraging sign that the
American economy may be resilient enough to absorb any drag
associated with reduced stimulus," said David Starkey, a
currency options dealer and market analyst for Cambridge
Mercantile Group in Toronto.
    The Fed's policy statement, due at 2 p.m. (1800 GMT), may
indicate a timeframe as to when stimulus for the U.S. economy
will be reduced. But it could also push back bets on when
benchmark interest rates will rise.
    Less stimulus for the economy could prod U.S. interest rates
higher, making the dollar more attractive to investors.
    The dollar index was flat at 81.808. On the month,
however, the dollar was down 1.5 percent.
    Against the yen, the dollar rose 0.2 percent to 98.24 yen
 yen after dropping to 97.56, its lowest in a month. For
July, the greenback posted losses of nearly 0.7 percent. 
    The dollar's direction is likely to be set by how markets
interpret the Fed's post-meeting statement, even though it is
expected to keep buying $85 billion of bonds a month for now. 
    Some speculate the U.S. central bank could adjust the
economic thresholds it has laid out to guide expectations of
when rates will rise, which analysts said would hurt the dollar.
    The U.S. currency rallied in May and June after Fed Chairman
Ben Bernanke said on May 22 that the Fed could cut back on its
bond purchases by September. Bernanke backtracked a few weeks
ago, however, saying that the Fed would still keep its stimulus
program in place if U.S. growth stayed sluggish.
    Many traders said they were inclined not to have any
significant dollar positions before the Fed decision, which one
London-based trader described as "a bit of a lottery".
    The euro was last up 0.1 percent at $1.3278 after
falling to session lows of $1.3213 during the U.S. data
releases. It posted monthly gains of about 2 percent.
    The Australian dollar hit a near three-year low of US$0.8945
 after the U.S. data and was last at US$0.8964, down 1.1
percent. Overnight comments from Reserve Bank of Australia
Governor Glenn Stevens were seen as increasing the chances of a
rate cut next week. 
    The Swedish crown, meanwhile, fell further after Tuesday's
weak growth data was seen increasing the risk of a rate cut.
 The euro hit a two-week high of 8.7252
    Analysts at Danske Bank, however, said the euro had been
"significantly overbought" relative to their 8.56 crown fair
value estimate, based on short-term interest rate spreads.
    They said the data was unlikely to be weak enough to trigger
a rate cut in Sweden, adding a dovish message after Thursday's
European Central Bank meeting "should weigh on the euro".

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