TODAY'S FOREX REPORT 31/JULY/2014

MARKET HEADLINES

• Rupee steady; dollar strength overseas supports pair Rupee trading at 60.1400/1425 versus previous close of 60.1250/1350 and continued pattern of range-bound trading given no fresh domestic triggers. Dollar saw near six-month peak ahead of US GDP data, outcome of Fed's two-day meeting. Month-end dollar demand from importers also supported rupee. NSE index was down 0.3 per cent. Barring major global events, traders said no big movement was seen for rupee until RBI review on August 5.
• Euro slides below $1.34, eyes on Fed and U.S. GDP The euro fell below $1.34 on Wednesday for the first time since last November before German inflation data that was likely to add to the case for the European Central Bank pumping more money into a moribund economy. The first batch of regional German data showed inflation falling well below 1 per cent even in the euro zone's strongest economy just as prices in Spain, Greece and Portugal are falling. The contrast between that picture and an increasingly robust U.S. recovery is one factor behind the dollar's rise this week to a six-month high against a basket of major currencies. A Federal Reserve policy decision and statement later on Wednesday will be looked to for any hint of when U.S. interest rates could be raised next year. Second quarter gross domestic product data is also due at 1230 GMT. The euro hit a fresh eight-month low of $1.3395 before recovering to $1.3400, down around 0.1 per cent on the day. Traders said if German consumer price data, due at 1200 GMT, came in below forecast, it would put more pressure on the ECB but that further easing was not likely soon given its recently announced package of cheap long-term loans to banks. "Given that they've just announced a package of easing measures - the target LTROs (long-term refinancing operations) won't even take place until September and December - I think the ECB is willing to take some times," said Lee Hardman, a currency economist at the Bank of Tokyo-Mitsubishi UFJ. The Fed is expected to cut its monthly bond-buying programme by another $10 billion on Wednesday and may also hint at an approaching hike in interest rates in light of labour market growth, with unemployment at its lowest in six years. "A more dovish than expected outcome with few changes could see a reversal of recent USD buying, but the introduction of new language on the impact of stronger labor markets following (Fed chair) Yellen's recent remarks would still be a significant hawkish surprise," Citi analysts said in a note. Against a basket of major currencies, the dollar touched a high of 81.283, its strongest level in six months. 
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