Major central bank policy meetings ahead

Foreign exchange markets were quiet on Monday and volatility low ahead of major central bank policy meetings next week.

The euro remained within its recent trading range against the dollar on Monday, its progress capped by expectations for a dovish European Central Bank meeting next week. Investors turned more bearish on the currency.

Money markets have priced in an ECB rate cut of 10 basis points in September and another one in March. The meeting on July 25 may reinforce those expectations. Investors expect the Federal Reserve to cut its key rate by 25 basis points at the end of July, followed by another cut in September.

Forecasts for dovish moves by both central banks have kept euro/dollar stuck in a narrow range for weeks.

Investors are more bearish on the euro. Treasury yields look set to remain among the highest in developed markets despite future Fed rate cuts. Speculators added to their short positions against the euro in the week to July 9, according to U.S. data. Leveraged funds extended their net long dollar positions for the first time in seven weeks.

Some analysts are surprised the euro is not gaining as the market prices in Fed easing.

START TRADING

Forex – Major central bank policy meetings ahead

The Australian dollar – enjoying a boost from encouraging Chinese economic data – was the only real mover.

An index that tracks the dollar against a basket of six other major currencies was flat at 96.761.

The Australian dollar reached a 10-day high on stronger-than-expected economic data from China. Some analysts saw it as signaling that moves to revive spending in the world’s second-biggest economy are working. The Aussie gained 0.2% to $0.7037 against the U.S. dollar, its highest since July 4.

The Swiss franc was up 0.1% at 1.1080 francs per euro, near a three-week high.

The euro was up 0.08% at $1.1281, still within the recent range of $1.14 to $1.11.

The British pound fell back towards six-month lows against the dollar and the euro on Monday. Sterling traders are still nervous about a loss of momentum in the UK economy, the prospect of an interest rate cut and a new prime minister. Sterling recovered slightly at the end of last week, ending a nine-week losing streak against the euro. The pound weakened 0.2% to $1.2556 by 0830 GMT, while against the euro it declined 0.2% to 89.785.

Sterling had hit a six-month low of 90.10 pence per euro last week.

Oil prices rose on Monday as Chinese industrial output and retail data topped expectations. Yet, gains were capped by overall figures showing the country’s slowest quarterly economic growth in decades.Brent crude futures LCOc1 rose 43 cents, or 0.64%, to $67.15 a barrel by 1335 GMT. U.S. crude CLc1 was up 35 cents, or 0.58%, at $60.56 a barrel.

PLEASE NOTE The information above is not investment advice.

Sources: Reuters, Investing, CNN money