US dollar pressured, euro sees broad support, pound sterling steady

The U.S. dollar was trading near a five-week low against a basket of its major rivals overnight, hurt by mounting doubts about the timing of any reduction in the Fed’s $85 billion in monthly bond purchases.

"Recent economic data along with generally dovish Fed minutes and commentary from Chairman Bernanke have dented expectations that the Fed will begin to scale back its monetary support for the economy around the end of the summer," says a comment from Commonwealth FX.

Commonwealth warn that Investors have become particularly cautious ahead of pivotal week for the dollar, which features the FOMC’s monetary policy meeting, the first look at GDP data for the second quarter and the Labor Department’s payrolls report on Friday.

Another strong reading of jobs growth in July could quickly revive hopes of a September taper by the Fed, which would likely see the dollar recoup much of its recent losses.      

The euro today

The euro continued to enjoy broad support following a week of stronger than expected economic reports.

Upside surprises to euro zone PMI reports were particularly instrumental in improving the outlook for the 17-member bloc and spurring demand for the single currency.

Commonwealth FX say, "indeed, a sustained improvement in the tone of euro zone data would keep the euro underpinned against the greenback.

"However, on a medium-term basis, the outlook for the euro remains negative based on expectations that the bloc will continue to lag the U.S. in economic recovery and monetary policy normalisation."

The pound sterling today

Sterling was steady against the greenback after enjoying a sizable run up against the dollar over recent weeks. The combination of a more dovish policy outlook for the Fed and surprisingly strong U.K. economic data has sent the pound to a one-month high against the greenback.

"However, the pound’s upside may prove limited ahead of the Bank of England’s Quarterly Inflation Report on August 7th, where the BOE could provide guidance on the outlook for its £375 billion asset purchase scheme going forward," say Commonwealth FX.

Commonwealth FX believe that with much of the good news already priced into GBP/USD, it may prove difficult for the pound to add meaningfully to its recent gains ahead of the BOE’s Quarterly Inflation Report in early August.