The dollar declined to a three-month low as the Federal Reserve unexpectedly refrained from reducing its $85 billion in monthly bond purchases and will keep pumping money into the economy in an attempt to boost growth.
Fed policy makers “decided to await more evidence” of economic progress, including holding its interest-rate target at almost zero until the unemployment rate falls below 6.5 percent. A survey of economists conducted by Bloomberg forecast a $5 billion reduction of Treasury purchases.
“The lack of tapering and lack of adjustment to the unemployment threshold is driving the dollar lower,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “It’s one of the most dovish outcomes possible.”
Fed Chairman Ben S. Bernanke previously said he expected the central bank to complete its asset-purchase program in the middle of next year when the unemployment rate is around 7%, down from August’s 7.3%. Bernanke and the Federal Open Market Committee have said they won’t consider raising its federal funds rate target as long as unemployment is 6.5% or higher.
EURO
The single currency is extending the consolidation pre-FOMC meeting. Builders began work on fewer U.S. homes than projected in August and applications for future work declined more than forecast, underscoring the risk that higher mortgage rates pose for the real-estate rebound.
Housing starts rose 0.9% to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated, a Commerce Department report showed today in Washington. The median estimate of economists called for 917,000. Permits dropped 3.8% to a 918,000 pace, showing a lack of drive heading into this month.
EUR/USD has pierced the strong resistance $1.3400 (Aug 23 highs) and $1.3450 (Aug 20 high) and reached currently $1.3510 area. Initial support remains at $1.3330/20 (last week’s highs and channel line from Sep 6). Below losses may widen to $1.3250 (Sep 13 lows).
POUND
The pound strengthened versus the dollar after Bank of England minutes showed policy makers saw no need for more stimulus.
Sterling strengthened for a fourth day as the minutes of the Sept. 3-4 meeting showed “no member judged that further stimulus was appropriate at present.” The minutes also showed the panel voted 9-0 to keep the bond-purchase program at 375 billion pounds ($599 billion).
GBP/USD rose to $1.6100. Above resistance comes at $1.6180. Initial support is around $1.5960 and $1.5900/$1.5890 (channel line from Sep 6) and $1.5780 (Friday’s lows).
YEN
The yen is still within the range.
USD/JPY holds above strong support around Y97.80 (earlier broken channel line from Jul 7). Minor resistance placed at Y100.00 (Friday’s highs) and Y100.60 (Sep 11 highs).
DATA PREVIEW:
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