US session review: US dollar remain under pressure

U.S. Dollar Index halted a five-day run of gains that took it to the highest level since July.

The dollar weakened against its higher-yielding counterparts after a report showed China’s services industry expanded last month, adding to signs the global economy is recovering.

The U.S. currency remained lower against the majority of its 16 most-traded counterparts after a Federal Reserve survey found “modest to moderate” economic growth in early July through late August. The Australian dollar climbed for a third day after the nation’s economic growth quickened, while the New Zealand dollar also advanced.

According to Fed's Beige Book U.S. economy grew at a "modest to moderate" pace in July and August, the Federal Reserve reported Wednesday, in language similar to what it has used for much of the year. The Fed's so-called Beige Book found modest expansion in the manufacturing sector; rising consumer spending in most Fed districts; a slight increase in services activity; and moderate residential real estate sales. The latest Beige Book comes two weeks before the Fed's next policy meeting, at which many economists expect the central bank to begin scaling back its asset purchases.

EURO

August’s services PMI in the euro area failed to meet expectations. The improvements from Germany, France and Spain opposed pullbacks from Italy and the bloc as a whole. 

Separate repoert showed on an annual basis Eurozone GDP decreased 0.5% in Q2, up from the 1.1% fall registered the previous quarter. Economists expected a greater decline of 0.7%. Quarter-over-quarter GDP rose 0.3% in Q2, compared with the 0.3% drop in Q1, as expected.

EUR/USD got support near $1.3160. Below rate may test $1.3060 (Jul 18 lows) and $1.3000 (Jul 15 lows). Initial resistance comes at Monday’s high on $1.3220, above - at $1.3250 (Friday’s hourly highs) and $1.3400 (Aug 23 highs).

POUND

The pound rose after the UK data release. In the United Kingdom, Markit Services PMI (August) came in at 60.5, beating expectation of 59.0, and compared with 60.2 previously.

Bank of England policy makers start a two-day meeting today.

The Bank of England’s nine-member Monetary Policy Committee will keep its asset-purchase target at 375 billion pounds tomorrow, according to economists. Officials will hold the main interest rate at a record-low 0.5% as they assess the impact of forward guidance, a separate survey showed.

GBP/USD trades above $1.5600. Initial resistance comes at $1.5640 (Aug 23 high) and $1.5715 (Aug 21 highs). Initial support is near $1.5495/00 (channel suppoort line from Jul 9), extending to Friday’s lows at $1.5460.

YEN

The yen slipped ahead of a Bank of Japan decision Thursday that could include some additional easing moves to offset plans to increase the national sales tax.

USD/JPY tested resistance Y99.80/90 (channel resistance line from Aug 27) and retreated. Above bulls may lift the rate to Y100.80/85 (Jul 2 and 18 highs). Initial support is around Y99.00 (Monday’s hourly lows), but back below Y98.70 (earlier broken channel line) may drag the rate down to Y98.00/Y97.90 (Aug 30 lows) and Y97.40 (Aug 29 lows).

DATA AHEAD:

At 23:50 GMT Japan releases Q2 GDP.

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