Dollar falls against pound, steady vs. euro
LONDON (Aug 14) The U.S. dollar fell against the British pound Wednesday following the release of minutes from the Bank of England Monetary Policy Committee’s latest meeting, but was unchanged against the euro despite the region’s exit from a six-quarter recession.
The British pound rose to $1.5527 from Tuesday’s level at $1.5444.
U.K. data showed the unemployment level for the April-to-June quarter remained unchanged at 7.8%. Meanwhile, the BOE said eight of the nine MPC members voted in favor of providing forward guidance on policy last month, and the vote to keep the quantitative-easing policy unchanged was unanimous. The central bank said it would keep interest rates at historical lows until unemployment falls.
The euro, however, bought $1.3253, slightly lower than $1.3259 late Tuesday in North America.
Euro-zone gross domestic product for the second quarter expanded 0.3% from the previous quarter, stronger than economists had expected. At first blush, the data could be perceived as supportive for the shared currency. But the backward-looking nature of GDP data and its impact on monetary policy led to the lackluster reaction in the euro, analysts said.
To some extent, the return to growth in the euro zone had already been priced in, said Thomas Stolper, chief FX strategist at Goldman Sachs in London. “There have been quite a few data points recently that had already suggested growth. It’s not at all a surprise,” he said, pointing to several months of improvements in purchasing managers’ index data.
Furthermore, the euro zone’s exit from recession likely won’t prompt a change in the European Central Bank’s monetary policy before such a change in the Federal Reserve’s stimulus, which many expect later this year.
“I think whether or not the euro zone is technically in a recession at this point is not as relevant as the outlook for monetary policy in the near term,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, Inc.
The region’s unemployment rate, for example, remains at a record high of 12.1%.
The Fed’s monthly bond-buying program, part of the central bank’s efforts to revive the economy, is currently set at $85 million. The central bank is expected to slow these asset purchases later this year, a move that many analysts say will be supportive for the dollar. The lack of a clear timeline for such a slowing has left investors to examine data and Fed speeches closely for hints.
“While the GDP for the euro zone is encouraging, it’s not likely strong enough to alter the view that the ECB will lag far behind the Federal Reserve in terms of monetary policy normalization,” Esiner added.
U.S. data on Wednesday showed that producer prices were stable in July and the core producer-price index ticked up 0.1%, with both figures falling short of economist expectations. On Tuesday, the U.S. July retail sales report appeared to reinforce the view of a stemming of monetary stimulus this year.
The ICE dollar index, which tracks the U.S. currency’s movement against six rivals, slipped on Wednesday to 81.721 from 81.772 late Tuesday.
