The U.S. dollar rallied against several of its peers as the markets awaited the outcome of the Federal Reserve’s two-day meeting. Investors speculated that the Federal Reserve would continue to trim the asset purchasing program by another $10 billion per month, and may implement changes to how it gauges the timing on increasing the benchmark interest rate. Many analysts believe that the Fed could move away from using technical gauges in order to make its rate decisions. The greenback traded to the upside after Russian President Vladimir Putin indicated that Russia is not interested in dividing the Ukraine. Mr. Putin suggested that the West was wrong in suggesting that now that Crimea will be annexed, other regions will follow. In the meantime, speculation over a possible reduction in stimulus by the Federal Reserve prompted market traders to shy away from safe havens, causing Gold Prices to drop.
The euro slumped against the greenback as all eyes were on the Federal Reserve decision over stimulus, and it remained to the downside as tensions between Russia and the Ukraine seemed to ease a bit. The shared currency was weighed on news suggesting that the Chinese economy continues to slow down. Reports revealed that one of China’s private developers defaulted, a factor that caused Chinese equities to decline and the yuan to hit an 8-month lows versus the greenback. The British pound advanced as the Bank of England stated that there are strong possibilities the currency could continue to appreciate now that the economy has recovered and is still improving. The Sterling rose against most of the majors as the Chancellor of the Exchequer, George Osborne, prepared to deliver the budget today.
The yen weakened against the greenback after Japan reported the 22nd month of expansion for its Trade Deficit while voicing concerns over the possibility that investors could begin to shy away from the yen given the country’s enormous debt burden.
Lastly, The Australian dollar snapped gains on news that a private Chinese developer collapsed, pushing the Chinese equities to the downside, dampening the outlook for the world’s second biggest economy. The Aussie fell after trading at three-month highs versus the greenback as the world’s markets kept an eye on the Federal Reserve since it was due to announce its policy decisions. The Kiwi dipped for the first time in three days after reaching 11-month highs.
EUR/USD: No Major Data Published
The EUR/USD gave up gains despite a lack of economic fundamentals out of the euro region. But the pair declined as the U.S. dollar was bolstered by speculation over what the Federal Reserve may decide on monetary policy. The slight easing of political tensions between Russia and the Ukraine also impacted the EUR/USD and the currency pair remained weak due to a small increase in U.S. Treasury yields and after Tuesday’s ZEW reports disappointed.
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GBP/USD: Sterling Works On Inflation
The GBP/USD rallied as the Bank of England reported that the Sterling’s increase has contributed to downward pressures on inflation. The pair went up as reports showed that the Claimant Count came in better than predicted, although the level of Unemployment did not change from 7.2 percent. A release by the Office for National Statistics divulged that the number of Unemployment claims dropped by 34,600 in the past month, rather than the forecast 25,000. Meanwhile, Bank of England governor Mark Carney announced that two of the policy makers Paul Fisher and Spencer Dale will be leaving the Committee. The minutes released by the central bank indicated that policy makers anticipate the pound going up even more. The GBP/USD dipped slightly after the U.S. announced that Building Permits climbed in February, a factor that raised optimism among American since this is a leading indicator of how well the real estate sector is doing. In the U.K., surveys have shown that investment managers expect to see more growth and this will cause the pound to outperform the 18-nation currency.
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USD/JPY: Deficit Widens Further
The USD/JPY traded higher as Japanese officials reported a widening of the Trade Deficit. Reports showed that while exports were high, they were overshadowed by the major increase in energy import spending. The release explained that since the 2011 earthquake, and the closing of the Fukushima Nuclear Plant, all others nuclear plants had to be taken off line, a factor that has contributed to Japan’s dependence on foreign natural gas and oil. Official numbers denoted that the Deficit is 3.5 percent higher than it was last year. Economy Minister Akira Amari reiterated that the deficit is also due to the weak economic situation in some export destinations and the fact that many firms are moving their production plants overseas. Meanwhile, Prime Minister Shinzo Abe says he will continue to drive recovery despite the challenges Japan’s economy is facing.
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XAU/USD: Gold Tumbles
The XAU/USD plummeted on Wednesday as the markets shifted their attention to the U.S. where the Federal Reserve was set to conclude its two-day monetary policy meeting. The XAU/USD dropped before Janet Yellen was due to deliver the decision at a press conference. Reports confirmed that the precious commodity has risen 12 percent so far in 2014, after plummeting 28 percent in 2013. Contracts for delivery in April plunged 0.9 percent and traded at $1,346.10 during the early morning hours in New York. They managed to dip to $1,345.40, the lowest in a week, while in London, bullion went down to $1,345.85.
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Daily Chart: Today’s economic calendar shows that Switzerland will report on the Trade Balance. The U.K. will deliver data on CBI Industrial Trend Orders. The U.S. will issue Initial and Continuing Jobless Claims, Existing Home Sales and the Philadelphia Fed Manufacturing Index.