Currency markets were relatively quiet during Wednesday’s European session in the absence of major economic data and investors are being cautious ahead of the FOMC minutes later in the US session. European equity markets were weak, particularly German stocks, which helped the euro to bounce back against the dollar.
The euro recovered from an Asian session low of 1.0630 versus the dollar to reach a European session high of 1.0691 where upside momentum fizzled out.
Sterling was flat on the day versus the dollar around 1.5210. It briefly popped up to 1.5247 on somewhat hawkish comments from Bank of England Deputy Governor Ben Broadbent.
The BoE policymaker spoke with regards to interest rates and suggested that UK economic data and surveys were a better guide than the Bank’s inflation forecasts as to the timing of a rate hike. Broadbent said that history suggested policy decisions were better correlated with economic growth. Investors interpreted Broadbent’s comments as suggesting that rates could rise sooner than current market expectations of January 2017 since he noted that the UK economic recovery was robust.
The dollar has mostly been trading within a range against the yen in the past two days, supported at 123.20 and reaching highs of 123.50.
While the greenback’s strength remains due to general market expectations of a Fed rate hike in December, its recent rally has stalled around 123.50 yen today as investors are being cautious ahead of the FOMC minutes due later at 19:00 GMT .
Also dampening demand for the dollar today were US housing data. Housing starts were worse-than-expected in October and fell to a 7-month low while building permits rose in line with forecasts. Construction on new single family homes dropped 11% in October to an annual rate of 1.06 million units. September’s starts were revised down to a 1.19 million-unit pace from 1.21 million units. Building permits in October rose to a seasonally adjusted annual rate of 1.15 million. This was above the revised September rate of 1.11 million.
Focus now turns to the more significant Fed minutes to be released this evening as investors are hoping they will shed a little more light on the rate outlook after the hawkish October FOMC statement increased expectations of a rate hike in December. Dovish minutes could dampen demand for the dollar.
Meanwhile, following the FOMC minutes, another risk event coming up for the greenback will be Thursday’s Bank of Japan monetary policy statement released on the conclusion of a 2-day policy meeting.
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