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 After the Fed's widely anticipated interest rate hike last week,
attention has turned to the pace of rate rises. Markets are fully
pricing in two increases in 2016, although Fed policymakers are
signaling four.
A mixed set of numbers on Tuesday showed that U.S. gross domestic
product (GDP) grew at 2 percent in the third quarter, slightly
slower than the initial estimate. Core personal consumption
expenditure (PCE), the Fed's preferred inflation measure, rose to
1.4 percent, slightly above expectations.
U.S. consumer spending rose in November by 0.3 percent, according to
data inadvertently released 12 hours ahead of schedule. But other
data reports showed that U.S. home resales unexpectedly plunged 10.5
percent in November, their steepest drop since July 2010.
The dollar index <.DXY>, which tracks the greenback against a basket
of six currencies, was flat at 98.286 after three losing sessions,
with the euro 0.3 percent down at $1.0925 <EUR=>.
"Yesterday's soggy U.S. data keeps Treasury yields firmly in their
ranges and with euro/dollar faithfully following the Bund/Treasury
spread, I can't see much to drive that cross out of its range,"
wrote Societe Generale macro strategist Kit Juckes.
Volume was thin, with many participants away for this week's
Christmas holiday.
Credit Agricole currency strategist Manuel Oliveri said that subdued
risk appetite could boost the euro in the coming days. The currency
has performed well this year at times of risk aversion, as investors
have unwound euro-funded carry trades in which the euro is borrowed
then sold for higher-yielding, riskier currencies.
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"When you are in an environment where rate expectations are stable,
the euro is mostly driven by risk sentiment," he said. "So we could
imagine that the euro goes to $1.10 or so into the end of the year."
A downward revision to 0.4 percent for UK GDP had little impact on
sterling, which was 0.4 percent up at $1.4891 <GBP=D4>. It had hit
an eight-month low of $1.4806 on Tuesday, with analysts citing
growing concerns about a British exit from Europe following a
referendum on the issue which could be held as early as June.
"The referendum is keeping uncertainty high and demand for sterling
low, and ... that should continue for the coming weeks and months,"
Oliveri said.
(Editing by Louise Heavens)
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