As the October policy meeting gets ready to begin in the U.S. for the Federal Reserve Bank, investors are cautiously awaiting confirmation of their expectations that the central bank intends to sideline the notion of any tapering of its current bond purchase program. The latest U.S. economic data is also helping to drive investors’ momentum regarding the U.S. Dollar, with manufacturing output barely edging higher while the U.S. housing sector posted its largest decline in sales of previously owned homes.
As an outcome to the data and investors’ expectations the U.S. Dollar index stayed close to last week’s nearly 9-month trough of 78.998 .DXY, only managing to edge slightly up to 79.388 .DXY; for the month, the Index has declined nearly 1% which follows a 2.3% drop last month. The EUR/USD traded at $1.3778, a loss of 0.1% but analysts believe that if the pair breaks through chart resistant pegged at around the $1.3800 to $1.3870 levels, the pair could retest the October 2011 high of $1.4248. GBP/USD eased back 0.3% to $1.6089, with the Pound Sterling at a 2-week low as a result of stop-loss selling.
U.S. Dollar’s Vulnerability Easing
Many analysts believe that traders have built up significant short positions in the greenback, suggesting that the greenback is less vulnerable to any negative news and in fact could stage a rally if any upside surprise occurs. Many believe that the Fed will now need to see evidence of the economy’s deterioration before making a decision on tapering and that possibility is likely to be announced on Wednesday.