Dollar gains on unexpectedly strong US data; Fed looms
* U.S. GDP grows 1.7 percent in 2nd quarter, boosts dollar
* U.S. private sector adds 200,000 jobs in July
* Markets await Fed decision at 2 p.m. (1800 GMT)
* Aussie dollar falls on RBA Stevens' comments
The dollar rallied on Wednesday, recovering from a one-month low against the yen, as upbeat U.S. economic growth and private-sector jobs data cemented expectations that the Federal Reserve will start to scale back its asset-buying this year.
The greenback, however, was on track for a second consecutive monthly decline against a basket of major currencies, with the euro gaining for a second straight month.
A report showing the U.S. economy grew at a faster-than-expected annualized clip of 1.7 percent in the second quarter, surpassing median forecasts for a rise of 1.0 percent, supported the dollar. Also, the U.S. private sector added 200,000 jobs this month when the market was expecting 180,000.
"This morning's data is an encouraging sign that the American economy may be resilient enough to absorb any drag associated with reduced stimulus," said David Starkey, a currency options dealer and market analyst for Cambridge Mercantile Group in Toronto.
The Fed's policy statement, due at 2 p.m. (1800 GMT), may indicate a time frame as to when stimulus for the U.S. economy will be reduced. But it could also push back bets on when benchmark interest rates will rise. Less stimulus for the economy could prod U.S. interest rates higher, making the dollar more attractive to investors.
The dollar index was up 0.1 percent 81.883. On the month, however, the dollar was down 1.5 percent. Against the yen, the dollar rose 0.3 percent to 98.34 yen . For July, the greenback posted losses of nearly 0.7 percent.
The dollar's direction is likely to be set by how markets interpret the Fed's post-meeting statement, even though it is expected to keep buying $85 billion of bonds a month for now. Some speculate the U.S. central bank could adjust the economic thresholds it has laid out to guide expectations of when rates will rise, which analysts said would hurt the dollar.
The U.S. currency rallied in May and June after Fed Chairman Ben Bernanke said on May 22 that the Fed could cut back on its bond purchases by September.
Bernanke backtracked a few weeks ago, however, saying that the Fed would still keep its stimulus program in place if U.S. growth stayed sluggish. Many traders said they were inclined not to have any significant dollar positions before the Fed decision, which one London-based trader described as "a bit of a lottery".
The euro was last flat on the day at $1.3266 after falling to session lows of $1.3213 in the midst of the U.S. data releases. It posted monthly gains of about 2 percent.
Aussie falls further
The Australian dollar hit a near three-year low of US$0.8945 after the U.S. data and was last at US$0.8961, down 1.1 percent. Overnight comments from Reserve Bank of Australia Governor Glenn Stevens were seen as increasing the chances of a rate cut next week.
The Swedish crown, meanwhile, fell further after Tuesday's weak growth data was seen increasing the risk of a rate cut. The euro hit a two-week high of 8.7252 crowns.
Analysts at Danske Bank, however, said the euro had been "significantly overbought" relative to their 8.56 crown fair value estimate, based on short-term interest rate spreads. They said the data was unlikely to be weak enough to trigger a rate cut in Sweden, adding a dovish message after Thursday's European Central Bank meeting "should weigh on the euro".