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US dollar advances ahead of FOMC statement

US stocks ended higher on Tuesday supported by better than expected building permit data ahead of the outcome of the Federal Reserve two day policy meeting. S&P 500 and the Dow Jones Industrial Average gained 0.6%. The dollar advanced against the euro on Greek debt crisis uncertainty. The ICE US dollar index, a measure of the dollar’s strength against a basket of six currencies, rose 0.2% to 94.9990. The annual pace of building permits surged 11.8% to 1.28 million, the fastest pace since August 2007, though housing starts missed expectations and fell 11.1% to an annual rate of 1.04 million in May. Today Federal Reserve rate decision and policy statement will be released at 19:00 CET, and Fed Chair Janet Yellen will hold a conference at 19:30 CET. The Fed is expected to leave the interest rate unchanged and provide an update of US economic growth, inflation expectations and future path of interest rates. According to the CME Group’s FedWatch tool, market participants are pricing in a 25% probability for interest rate hike in September and 65% probability for a December hike. We believe that the Fed will lower the 2015 US growth forecast after the slowdown in the first quarter and indicate a slower pace of interest rate increases. Today at 12:00 CET Mortgage Applications will be released by the Mortgage Bankers Association of America.

European stocks closed higher on Tuesday after hitting a four month low as the selloff and weaker euro created buying opportunities for investors. The Stoxx Europe 600 index rose 0.6%. Euro fell after Greek Finance Minister Yanis Varoufakis told a German newspaper that he will not make new reform proposals at a meeting of European Union finance ministers, known as the Eurogroup, on Thursday. The international creditors insist that Greece cut pensions and raise value added taxes to run a higher budget surplus to pay off the bondholders, while the Greek government contends pensions cannot be cut any lower. Greece is running out of cash as it has to repay 1.5 billion euros to the International Monetary Fund on June 30, the same day the bailout expires, and a possible default if no agreement is reached by then will move it closer to exit from euro-zone. Today at 10:00 CET April Construction Output and final estimates of inflation for May will be released in euro-zone.

Nikkei fell 0.2% today as concerns over possible Greek default weighed on investor sentiment. Ministry of Finance data showed while the trade deficit narrowed in May, export growth slowed for a second straight month in May to 2.4% year-on-year, from 8.0 % rise in the prior month. Weaker external demand will translate into slower growth in the current quarter as private consumption remains weak despite the efforts of the Bank of Japan to stimulate the economy through monetary easing. Tomorrow at 00:50 CET financial data on foreign and domestic purchases of bonds and stocks will be published in Japan.

WTI prices on Tuesday recorded the first gain in four sessions while Brent prices retreated. Oil prices are rising today on expectations of lower crude supply in US as the Energy Information Administration releases US Crude Oil Inventories at 15:30 CET.

Gold fell on Tuesday erasing the previous session’s gains as dollar advanced ahead of the outcome of the Federal Reserve’s monetary policy meeting.



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