Brokers' notes: Gold slips below $1200; British pound falls

Investors and traders in the currency markets have been winding down exposure in Euro and GBP as the uncertainty whether the US Federal Reserve will start a new phase of quantitative easing to deal with a slowing economy is quite high.

US dollar

US dollar has been adding steady strength to its overnight gains on the back of this uncertainty. We do not expect any changes to policy measures at FOMC meeting, but the "extended period" language should be retained and Fed should acknowledge the recent weakness in economic data and the growth section is likely to be downgraded. Steps by the Fed could range from a pledge to consider more quantitative easing, reinvesting money from maturing debt into Treasuries or mortgage-based securities, cutting interest paid on excess reserves, and buying financial assets outright.

Pound down against the euro

GBP fell on Tuesday as traders pared short dollar positions amid uncertainty ahead of a Federal Reserve meeting while UK housing and retail sales data pushed the pound down against the euro. House prices fell in the three months to July for the first time in a year as demand weakened and supply increased at its fastest pace in more than three years, a survey showed on Tuesday. British retail sales growth also came in weaker than forecast, slowing sharply in July. The release of better-than-forecast UK trade data, showing a sharp rise in exports in June and a narrowing goods deficit with the rest of the world, had no discernable currency impact.

Gold

Gold prices slid below $1,200 an ounce as the UK and Europe session progressed as traders adjusted their positions ahead of the Federal Reserve's monetary policy announcement due after the close. US Labour Dept will release preliminary Q2 productivity and unit labour costs at 4.30PM UAE time. Economists forecast 0.2 pct increase in productivity following 2.8 pct rise in Q1 revised report. Following this, US Commerce Dept will releases wholesale inventories for June at 6PM UAE time.

Source: Richcomm Global, Dubai; www.richcommglobal.com