USD Rally Ends as Fed Takes Dovish Bias

The U.S. Dollar’s recent rally came to a halt despite unexpectedly upbeat GDP data after the Federal Reserve Bank signaled a dovish bias in its policy statement. Today’s release of the first reading of 2nd quarter GDP published by the U.S. Bureau of Economic Analysis showed that annualized growth improved to 4.0%, well above analysts’ forecast of a rise to 3.0% and a decided improvement from the 1st quarter’s contraction of -2.1%. Though the GDP figures came out several hours before the announcement of the Fed’s rate decision, it appears that the central bank is still in no rush to increase its benchmark interest rates even though it is more upbeat about the U.S. economic outlook. The Fed did, as expected, curtail its quantitative easing scheme by an additional $10 billion a month.

As reported at 12:42 p.m. (JST) in Tokyo, the U.S. Dollar Index traded at a session high of 81.545 .DXY, a level not seen in nearly a year, before retreating slightly to 81.422 .DXY; the Index is used by FX traders to measure the greenback’s relative strength against major rivals. The USD/JPY had edged to a 4-month peak to trade at 103.15 Yen before slipping back to 102.85 Yen while the EUR/USD dipped to a 9-month low at $1.3366 before recovering to $1.3394.

Eurozone Inflation Data Eyed

The Euro has been under continued pressure and Wednesday’s release of German inflation data, which dipped to 0.8% in July, is being viewed by investors as a possible precursor to the Eurozone’s overall inflation figures which are due out later today. Analysts expect that the Eurozone’s CPI will remain at 0.5% annualized in July, well below the European Central Bank’s target which is already considered by ECB officials as within the “danger zone.”

Barbara Zigah

After working on Wall Street, Barb began her second career as a freelance writer at Daily Forex, where the CEO recognized fresh, untapped potential and was willing to give her a try. She’s never looked back. Since then, she’s worked steadily as a freelance writer and editor in the financial services and Forex-related industry.