Dollar down after Fed

Relatively soon

An unusually symmetrical day left sterling exactly in the middle of the field. It was unchanged on average against the other dozen most actively-traded currencies, 1% higher against the last-placed US dollar and -1% lower against the class-leading Australian dollar. The Fed was mostly to blame.

A week ago the president of the European Central Bank said his Governing Council would consider a wind-down of the bank's asset-purchase scheme "in the autumn". His comment sent the euro higher. Yesterday the US Federal Reserve said in a statement that it expects to begin winding down its stock of Treasury bonds "relatively soon". The comment sent the dollar lower.

The Fed's announcement was no more surprising than the one from the ECB. Both were theoretically positive for their respective currencies - in that they represent tighter monetary policy - but should already have been largely priced into the exchange rate. So why did the euro go up last week and the dollar go down yesterday? Mainly because, at the moment, investors have greater regard for the euro than they do for the Greenback.

Almost immediately

If the US dollar was the main casualty of the Fed announcement, the principal beneficiaries were the commodity-oriented currencies. The Fed is in no burning hurry to write off the trillions of bonds hoovered up during the quantitative easing programme or, apparently to take interest rates higher. That implies low rates for longer.

The argument is a simplistic one: cheap money from America (and Europe and Japan) means increased demand, especially from China, for the raw materials that go into the stuff that cheap money will be spent on. Simplistic or not, it worked yesterday. The Australian and NZ dollars strengthened by one and a half and one and a quarter cents respectively. Even the South African rand was up there with the Kiwi. And the US dollar lost a cent and a quarter to the pound.

Sterling was unchanged against the euro. Its salvation was the data showing that Britain's gross domestic product expanded by a provisional 0.3% in the first quarter. By global standards it was a rubbish performance but investors had feared an even lower figure.

More from the States

The agenda for the rest of the week will remain dominated by the US. Today's durable goods orders figure is as unpredictable as ever and tomorrow's second quarter GDP reading has the potential to spring a surprise.

For what it's worth, analysts think durable goods orders went up by between three and four per cent in June, and that the US economy expanded by 0.6% in Q2. Downside surprises would be likely to hurt the dollar: better than expected figures could conceivably help it.

There will be a couple of UK ecostats in the mix. Today's CBI Distributive Trades Survey will provide a picture of retail sales in July and at midnight tonight GfK will release its index of consumer confidence. Neither is hugely important.