The US dollar (USD) soared against several currencies on Wednesday (July 11) after the Federal Open Market Committee’s (FOMC) minutes from its June 19-20 meeting displayed the position that there is no need of near-term monetary easing. According to the Fed minutes, while some policymakers believed additional stimulus was needed in order to boost growth, the Federal Reserve will decide on a third round of monetary easing only when there are further signs of economic slowdown.
Following the Fed minutes, the US dollar pushed towards highs of the session against the euro (EUR), with the single currency closing 0.1 per cent lower at 1.2236, after touching a low of 1.2225 — its lowest level since July 1, 2010. Investors remain worried over the Eurozone debt crisis with the expectation that the German Constitutional Court hearing regarding the Eurozone’s bailout fund may be delayed adding to uncertainty. Spain’s announcement of new measures to help the country reduce its public deficit by 2014 raises the possibility of avoiding a full state bailout while anti-austerity protests in Madrid even turned violent. All these factors also contributed to the euro edging lower against the US dollar.
!m(/uploads/story/150/thumbs/pic1_inline.png)Consequently, the British pound (GBP) continued to trade higher against the euro and remained steady against the US dollar rising 0.1 per cent to 1.5523, its strongest level since October 2008. Meanwhile the Australian dollar (AUD) declined against the US dollar to 1.0162 from 1.0280 after figures showed an unexpected drop in Australian employment. These figures boosted fears over an economic slowdown in Australia as a result of a slowdown in China. Being Australia’s largest trade partner, China may negatively affect the Australian currency if an economic slowdown were to be experienced. These fears have also been raised by China’s most recent Gross Domestic Product figures which are likely to reveal the slowest growth of the country for the last three years.
At the same time the Japanese yen (JPY) gave up some of its earlier gains against the US dollar, with the greenback rising 0.3 per cent to 79.94 from 79.13. The Japanese currency had strengthened in the run-up to the two-day meeting of the Bank of Japan amid subdued expectations for further monetary easing. Analysts pointed to recent signs that the Japanese economy was improving as reducing the odds the Bank of Japan would take action in regards to further monetary easing this week.
The near-term outlook for the United States also does not involve additional monetary easing, according to analysts. The Federal Open Market Committee’s next meeting is scheduled for July 31-August 1, which will be followed by another two-day meeting September 12-13. If the central bank is going to launch another round of quantitative easing, it seems unlikely to come before the September meeting, since the data and economic conditions may not change all that much in the six-week period between the June and July/August meetings, analysts remarked.