US Session – Dollar reverses gains after Fed disappoints

bernankeThe U.S. dollar erased an earlier rally after the Federal Reserve policy statement which said it will keep its $85 billion-per-month bond-buying program in place and did not mention when it would begin tapering. It also pointed to recent modest growth in the U.S. economy.

The Fed pointed out that persistently low inflation may be a risk to the economy and hamper economic growth, which suggests the central bank will do more to spur inflation.

Stimulus measures implemented by the Fed so far tend to have a weakening effect on the dollar. So any prolonged measures in place will reduce demand for the USD.

Early in the U.S. trading session the dollar rallied against most major peers after upbeat data showed second quarter GDP rose at a 1.7 percent annualized rate, after a 1.1 percent gain in the prior quarter.

Also ADP released data showing that private sector jobs rose by 200,000 in July, beating forecast of 180,000. The data come ahead of the government’s monthly labor jobs report on August 2nd, known as the nonfarm payrolls report.

USDJPY made a U-turn after hitting a high of 98.50 on the GDP and jobs data, dropping to a low of 97.67 following the Fed statement.

EURUSD moved off a low of $1.3210 it fell to after the U.S. GDP data strengthened the dollar across the board. The pair rebounded due to the softer dollar after the FOMC policy review, rising to as high as $1.3343.

Focus for the euro will be on the European Central Bank policy meeting on Thursday.

GBPUSD bounced off an earlier session low of $1.5125 to a high of $1.5250. Attention turns to the Bank of England policy meeting on Thursday.

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