MW:Euro, pound slip ahead of U.K., Germany updates
By Carla Mozee, MarketWatch
LOS ANGELES (MarketWatch) — The euro and the British pound fell against the U.S. dollar Wednesday, with the retreat coming ahead of key policy and data updates from Europe.
The euro EURUSD -0.04% edged down to $1.3296 from $1.3308.
Late Tuesday, the euro had traded above $1.33 for the first time since June 19, pushing higher after a round of upbeat economic data, including a climb in German manufacturing orders in June and a narrower contraction in Italy’s gross domestic product in the second quarter.
Germany, Europe’s largest economy, is due to release June industrial production figures later Wednesday, with analysts at Barclays looking for a increase of 1% from the previous month, “reflecting a rebound in vehicle production and moderate expansion in other sectors.”
The British pound GBPUSD -0.12% on Wednesday bought $1.5322, down from $1.5354. Sterling ended flat against the dollar Tuesday, but had seen gains during the day after U.K. quarterly industrial-production data logged the strongest growth since December 2010.
On Monday, an index tracking activity in the U.K. services sector in July jumped to a six-and-a-half-year high. The services data “added to the recent flow of positive news from the U.K., suggesting a marked pick up in the recovery at the start of the third quarter,” said Daiwa Capital Markets economists Chris Scicluna and Emily Nicol in a report this week.
Following the run of brighter data, investors will turn their attention to Bank of England Gov. Mark Carney, who is slated present the central bank’s quarterly inflation outlook and is also expected to address forward guidance on policy.
The Bank of England, which already has an inflation target of 2%, will most likely tie plans for any interest-rate changes to a threshold, said BK Asset Management managing director of FX strategy Kathy Lien in a note.
The central bank could take a cue from the U.S. Federal Reserve and establish an unemployment-rate target, she wrote.
What would have a significant impact on sterling is if the Bank of England targets unemployment lower than 7%, Lien wrote.
“With the current rate of unemployment at 7.8%, a lower unemployment target would imply that the central bank plans to keep rates on hold for the next two years,” she wrote.
“Sterling could also give up its recent gains if the central bank says that interest rates will be not be increased if inflation is less than 1.5%, which would be a further commitment to low rates,” Lien said in the note.
Over in Asia, the Bank of Japan will come into focus as it is slated to issue its latest policy decision Thursday. Economists polled by The Wall Street Journal expect the bank to stay with its current policy stance, aimed at pushing consumer prices to a 2% target in two years.
Against the Japanese yen, the dollar USDJPY -0.44% fell to ÂĄ97.35 from ÂĄ97.71.
The ICE dollar index DXY -0.03% , which tracks the U.S. currency’s movement against six rivals including the euro and the pound, rose to 81.631 from 81.609 late Tuesday in North America. However, the WSJ Dollar Index XX:BUXX -0.06% , which uses a slightly wider comparison basket, slipped 73.97 from 73.98.
The dollar on Tuesday fell against its major rivals, finding no relief after two Federal Reserve officials said they foresaw the Fed slowing the pace of asset purchases this year. Monetary stimulus has been seen as putting downward pressure the dollar’s value.
Charles Evans, president of the Chicago Federal Reserve Bank, said the central bank is “quite likely” to begin cutting back its bond buys this year, adding that economic fundamentals are “actually really better.”
Separately, Atlanta Fed Bank President Dennis Lockhart said the first slowing of bond buying could be announced at any of this year’s policy meetings.
Philadelphia Fed President Charles Plosser and Cleveland Fed President Sandra Pianalto are due to speak on Wednesday.
In other trade, the Australian dollar AUDUSD -0.22% bought 89.59 U.S. cents, easing back from 89.89 U.S. cents.
The Aussie on Tuesday briefly fell after the Reserve Bank of Australia cut its key interest rate by a quarter-percentage point to 2.5%, but it bounced off intraday lows, with some analysts saying the bank’s statement carried a less-dovish tone.
