EUR/USD edges lower ahead of Fed’s decision, US housing data

The US dollar advanced against the euro, as investors awaited the outcome of the FOMC meeting and potential news on Fed’s tapering timeline. Meanwhile, the greenback was supported by better-than-expected US Housing data for November.

Having reached a session high at 1.3778 at 07:15 GMT, EUR/USD erased daily advances to trade at 1.3757 at 16:07 GMT, losing 0.08 on a daily basis. Support was likely to be received at December 17th low, 1.3723, while resistance was to be encountered at December 17th high, 1.3782.

The greenback was supported by a report, showing the number of building permits issues in the U.S. fell less-than-expected in November, remaining near the highest level since January 2008, while at the same time US housing starts rose at a faster-than-expected pace in November.

In a report the Census Bureau said that the number of building permits issued last month declined by 3.1% to a seasonally adjusted 1.01 million from 1.04 million units in the previous month. Analysts projected a 4.7% decline to 0.99 million units in November.

The report revealed that US housing starts rose by 22.7% in November, hitting a seasonally adjusted 1.1 million from Octobers 0.89 million. Analysts forecast pointed an increase to 0.95 million.

The release of housing starts data has been delayed due to the experienced partial government shutdown.

Investors attention is now turned to the outcome of the FOMC two-day meeting, which will conclude later today.

Although a recent series of upbeat US data, including retail sales, industrial production, unemployment and third quarter growth, raised bets the Federal Reserve might trim its monthly bond purchases in December, the majority of economists haven’t shifted their expectations that the central bank will wait most likely until March.

Also supporting that view, the Department of Labor reported yesterday that consumer inflation in the US remained benign and well below Fed’s official target of 2%, leaving enough room for eased money supply. The consumer price index (CPI) rose to 1.2% in November, compared to a year ago, short of analysts’ estimates of a rate of 1.3%. In October, consumer prices reached 1.0%. Month-to-month, consumer inflation was flat, compared to October’s 0.1% decline and short of analysts’ projections of an increase by 0.1%.

Consumer prices, excluding food and energy costs, or core consumer prices, increased to 1.7% in November from a year ago, the same as in October and in line with expectations. Month-to-month, Core CPI rose by 0.2% in November from 0.1% in October. Analysts’ forecasts pointed to a 0.1% gain. The Federal Reserve regards that core prices can be a better gauge of longer-term inflationary pressure, because they exclude the volatile food and energy categories.

The Federal Reserve may begin to scale back its $85 billion in monthly asset purchases at the committee’s policy meeting on December 17th-18th rather than wait until January or March, according to 34% of economists who participated in a Bloomberg survey on December 6th. In November’s survey, 17% of respondents projected a tapering in December.

Meanwhile, data coming from Germany, the largest Euro zone economy, supported the euro earlier in the trading session. The data showed that the German business confidence improved in line with expectations to reach the highest level since April 2012.

The German research institute, Ifo, published its Business Climate Index (BCI), which rose to a seasonally adjusted 109.5 in December, in line with preliminary estimates and up from a reading of 109.3 in November. The Business Expectations Index which is a sub-index of the BCI, evaluates the attitude toward business perspectives during the next half a year. The sub-index increased to 107.4 in December, the highest level since May 2011, from 106.4 in November and above analysts forecast for a reading of 106.5. Only the Current Assessment Index, also a sub-index of BCI, disappointed declining to a reading of 111.6 this month from 112.2 in November, defying analysts projections of an increase to 112.5.

The monthly BCI index is based on a poll among 7 000 German firms in manufacturing, construction, wholesale and retail sectors.

Elsewhere, having hit a session high at 1.6365 at 09:43 GMT, GBP/USD traded at 1.6354 at 12:21 GMT, gaining 0.55% for the day. The pair touched 1.6466 on December 10th, the pair’s highest point since August 29th. Support was likely to be received at December 17th high, 1.6220, while resistance was to be encountered at December 12th high, 1.6418.

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