Dollar Gains as QE Reduction Speculations Do Not Recede

The US dollar appreciated today as traders continued speculate that positive fundamentals will encourage the Federal Reserve to reduce pace of asset purchases despite poor non-farm payrolls. The currency weakened against the Japanese yen.
Institute for Supply Management reported that non-manufacturing Purchasing Managers’ Index jumped from 52.2 percent in June to 56.0 percent in July, while the median forecast was at 53.2 percent. The US trade balance deficit shrank from $44.1 billion in May to $34.2 billion in June, more than was expected. This week is relatively poor on macroeconomic reports from the United States, but those that were released turned out to be quite good.
The continuous stream of good data renewed speculations about possible trimming of the quantitative easing program by the Fed. Such talks hushed after last week’s non-farm employment report came out worse than was expected, but quickly resumed, pushing the dollar up.
EUR/USD fell from 1.3302 to 1.3294 and GBP/USD ticked down from 1.5347 to 1.5324 as of 2:13 GMT today. Meanwhile, USD/JPY dropped from 97.72 to 97.41.

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