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Focus turns to FOMC, dollar slips, euro up on German data

Focus turns to FOMC, dollar slips, euro up on German data

Currency markets are slowing down in anticipation of a major risk event of the year, which is the much anticipated Federal Open Market Committee announcement on Wednesday. Many investors are focusing on what the Fed will say and whether it will decide to taper stimulus and by what amount. Any large reduction to the current $85 billion a month asset purchase program, say more than $10 billion, will move markets, but may minimal amount will unlikely disrupt markets. The dollar is being weighed down by this bond purchase program, so any signal the Fed will begin scaling back on this will help the dollar appreciate. Today USD/JPY was directionless between a range of 99.05 and 99.30 yen as investors prefer to wait on the sidelines before the FOMC meeting, since this pair will be the most affected by any Fed announcement. In other news, the main economic data during the European session was the German ZEW index on investor confidence. The index hits its highest level since April 2010 showing that Europe’s largest economy has a brighter outlook its economy as well as for the overall Euro zone economy. EUR/USD rose to a session high of $1.336, gaining 0.2 percent from the session open of $1.3342. Sterling was hurt by lower UK inflation data today, which raises the likelihood of interest rates remaining low. GBP/USD fell to a session low of $1.5884 after hitting an early session high of $1.5935. Coming up in the US session, data will be released on US inflation as well as on the US housing market.

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