Ahead of the Federal Reserve Decision on interest rates the dollar edged lower as data continued to point to moderating of the most recent economic rebound.  Housing numbers disappointed, reducing yields in the United States and weighing on the greenback.  The recent spate of weaker than expected U.S. economic data points has drained positive momentum in the forex market.

In the United States, housing data for August was revealed, and it appears to be disappointing. U.S. housing starts underperformed with a 5.8% August drop after small upward revisions, with a 0.4% permits decline that left a weak report overall, though both measures appear poised for quarterly gains in Q3 with persistent growth in starts under construction.

The weakness in the housing starts numbers was concentrated in the south, though it was spread across the single and multi-family components. Starts and permits continue to ratchet higher from weak Q4 levels. Q3 growth rates of 5% for starts and 3% for permits are likely, alongside a solid 12% Q3 growth clip for starts under construction with a 0.9% August rise that bucked headline weakness. Starts and permits are expected to post respective Q3 averages of 1.175 million and 1.148 million that would mark a new cycle-high for starts, versus a cycle-high for permits back in Q2 of 2015 of 1.259 million.

Going forward the market expects a 12.1% August new home sales drop to a 575k rate and a 1.7% existing home sales rise to a 5.48 million rate. August construction spending is expected to rise 0.4% which should beats a 1.3% construction hours-worked drop with a 6k construction payroll decline.

On the growth front, the Atlanta Fed’s Q3 GDPNow estimate was again cut to 2.9% down from 3.0% previously and as high as 3.8% at the start of the process. The Atlanta Fed reported that  “The GDPNow model forecast for real GDP growth  in the third quarter of 2016 is 2.9 percent on September 20, down from 3.0 percent on September 15. The forecast of third-quarter real consumer spending growth ticked down from 3.1 percent to 3.0 percent after last Friday’s Consumer Price Index release from the U.S. Bureau of Labor Statistics. The forecast of third-quarter real residential investment growth remained at -6.3 percent after this morning’s housing starts release from the U.S. Census Bureau”

U.S. yields dove to lows on the large headline drop in housing starts in August, but the decline was could have been weather-related. The 2-year yield rolled over from 0.782% highs to 0.77%; the 5-year moved down from highs of 1.222% to 1.195%; the 10-year stumbled from 1.713% highs to 1.68%; and the cash bond yield toppled from 2.455% highs to 2.415%. The curve is flattening as the long-end paces the move down in yields.

The forex markets are poised to gyrate in the wake of both the Fed meeting and the BoJ decision on interest rates which will be released ahead of the Fed’s decision.  Yen bears desperately need a dovish tune to buoy the USD/JPY currency pair.