DAILY FOREX REPORT FOR 01 AUGUST 2014

MARKET HEADLINES
 

Dollar boosted by strong US growth
The dollar pushed higher against other major currencies on Wednesday helped by a stronger-than -expected initial estimate for second-quarter US economic growth. The Commerce Department reported the economy rebounded to a 4.0 per cent growth pace in the April-June period after the sharp contraction of the first quarter, caused largely by extremely severe winter weather across most of the eastern half of the country. That sent the dollar up to $1.3367 per euro, its highest level since November, before settling at $1.3395. It also jumped to 103.09 yen, and to $1.6890 per pound, before slightly paring those gains. Hours after the economic growth report the Federal Reserve issued a fresh monetary policy statement that, as expected, made no fundamental changes to its course on tapering the stimulus and held the federal fundsrate at its near-zero level. The Fed expressed continued concern about weaknesses in the labor market, but in a slight change in language it acknowledged the rise in inflation, but saw no major threat. Jens Nordvig of Nomura said the Fed's statement suggests possible changes to policy that would be bullish for the dollar if jobs data strengthens and inflation picks up as expected in the coming months.

Sterling stuck at six-week lows against dollar
Sterling was rooted to its lowest in six weeks against the dollar on Wednesday, with events in the United States later in the session expected to be the best bet for fresh direction after two weeks of solid gains for the US currency. The pound is in negative territory for a fourth straight week, adding to a sense that its year-long rally, against the dollar at least, has stalled after hitting strong resistance at $1.71. The pound touched a new six-week low of $1.6928 in European morning trade, off less than 0.1 per cent on the day. The International Monetary Fund ( IMF) this week joined a chorus of voices questioning the value of sterling. After an 11 percent gain against a basket of currencies over the past year, it said the pound was overvalued by 5 to 10 per cent. With the domestic data calendar light, whether the British currency falls further this week is likely to depend chiefly on US numbers, starting with second quarter gross domestic product and the ADP jobs report on Wednesday. "I've thought the market was over-egging the chances of a UK rate hike this year and I'm probably in a minority in thinking they could even wait until after the second quarter of next year," said Neil Mellor, a strategist with BNY Mellon in London. "The fact that the Bank of England is concerned that wage growth is lagging the recovery is something the market is taking note of. I still think sterling goes higher. But this is a case of disappointment just for the moment.

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