The dollar weakened later in yesterdays session after the Fed concluded its two-day policy meeting by leaving the benchmark lending rate target unchanged at 1%-1.25%. The sluggish inflation outlook for the US economy has raised doubts over whether the Fed will be able to stick to its plans to tighten monetary policy in the second half of the year.
However in its statement yesterday, the Fed rate-setting comittee indicated that it expects to start unwinding its $4.5 trillion balance sheet "relatively soon" and also acknowledged US economic growth and jobs gains.
Close tabs were also kept on political developments in the US after the Senate narrowly agreed to debate a bill to repeal 2010’s Obamacare law, formally known as the Affordable Care Act. Markets are also closely following investigations into collusive behaviour between the Trump administration and Russia in last year’s US presidential election.
There are now increasing tensions that the political uncertainty will destabilise the US presidents plans to cut taxes and boost spending on infrastructure, proposals which helped USD to reach 14-month highs following the election in November.
Gains in USD were also limited by the release of weaker than expected US housing sector data. The US Commerce department revealed that sales of newly built properties increased by 0.8% in June. Analysts had originally expected new home sales to increase by 1.4%.
The pound registered minor losses against USD yesterday despite data which showed a slight pickup in UK economic growth, in line with economists’ expectations. The ONS yesterday revealed that GDP grew by 0.3% in the second quarter of the year, up from 0.2% growth in Q1.
Britain’s services sector appeared to be the main driver of growth with output rising 0.5%. In particular, it was services such as retail and film production and distribution which showed the biggest improvements. On the other hand, industrial and construction output both shrank, which pulled down overall growth.
However the positive data failed to buoy the pound as USD remained steady ahead of the Feds lending rate decision.
13:30 - USD: Core Durable Goods Orders m/m; Forecast at 0.4% from a previous of 0.3%
13:30-USD: Unemployment Claims; Forecast at 233K from a previous of 240K