Euro Holds On To Gains Before FOMC Meeting Closes
The euro held on to gains from positive economic data and a weaker dollar and traded at $1.3357 at 7:25 GMT on Wednesday morning.
Reuters reported that Germany's ZEW survey of economic sentiment was upbeat and rose to its highest level since April 2010. The data reflects Germans' confidence in the nation's stability, which could boost support for current Chancellor Angela Merkel's re-election on September 22nd.
Recent polls showed that Merkel and her coalition government may not be reinstated as smaller parties like the Alternative fuer Deutschland stole votes. With the eurozone recovery slowing gaining momentum, markets will be hoping for Merkel and her coalition's re-election in order to avoid more political uncertainty in the 17 nation bloc.
Gains from the positive sentiment data will likely be lost by the end of the day on Wednesday as the FOMC meeting comes to a close. The majority of economists are expecting the policy statement following the meeting to signal the beginning of the Fed's tapering plan. The bank is expected to reduce its asset purchasing program by $10 to $15 billion.
Although the tapering is widely expected to boost the dollar, months of anticipation should keep markets from major volatility. As long as the Fed doesn't surprise investors with the size of the taper or a change in interest rates, markets should avoid a calamity. The US' central bankers are likely to proceed with the taper cautiously, as they will hope to limit the dollar's rally and keep yields from rising.
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