FOREX REPORT FOR 24 JULY 2014

MARKET HEADLINES
 

Dollar firms, euro cracks under rates pressure
The dollar held close to a six-week peak against a basket of currencies in Asian trade on Wednesday, as the euro edged down to touch a fresh 2014 low on the diverging interest rate outlook for the US and euro zone. The dollar index, which tracks the greenback against a basket of six major rivals, was steady on the day at 80.773, not far from a Tuesday high of 80.837 touched on expectations that higher US interest rates are on the horizon. Data issued on Tuesday showed US inflation was 0.3 per cent in June, in line with most analysts' forecasts, though core inflation, excluding volatile food and energy prices, was just 0.1 per cent, about half of what analysts had forecast. Despite the weaker-than-expected core inflation reading, market expectations that the US Federal Reserve is on track to continue tapering its bond purchase programme and then raise interest rates in the latter half of 2015 remained intact. "The US will raise next year, while in Europe, by contrast, we might see more easing steps," Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo. The euro languished at multi-month lows against many of its peers, having moved decisively lower in the previous session with an eye-catching fall in the Swiss franc. The weaker euro dovetailed with expectations for the European Central Bank to ease policy further. The common currency was treading water at $1.3465 after touching a fresh eight-month low against of $1.3458 earlier, while it also slipped about 0.4 per cent against the Australian dollar to A$1.4271.

Euro hit by concerns over tougher Russia sanctions, diverging rate outlook
The euro hit an eight-month low against the dollar on Wednesday as worries over tougher sanctions on Russia and their potential impact on fragile euro zone growth drove investors away from the single currency. The euro also fell against sterling, which was supported ahead of the latest minutes from the Bank of England's Monetary Policy Committee, due at 0830 GMT. Markets will be looking for any signs of when an interest rate hike might come, with any move to a more hawkish tone likely to boost sterling further. The Australian dollar rose over half a per cent against the US dollar, boosted by a higher-than-expected reading of a key gauge of underlying inflation in June, denting market speculation of future rate cuts. The euro's weakness was broad-based, dropping to its lowest in nearly two years against the British pound. The single currency fell to 78.83 pence, its lowest since August 2012. Against the dollar, the euro fell to $1.3455, its lowest since November 2013, with investors eying more losses in coming days. The euro was down 0.2 per cent against the yen at 136.45 yen, trading near its lowest in more than five months.

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