Dollar Edges Higher Ahead of Fed Statement

Dollar Edges Higher Ahead of Fed Statement

Dollar Edges Higher Ahead of Fed Statement © Reuters.

By Peter Nurse – The dollar maintained a strong tone in early European trading Wednesday, as traders looked forward to the conclusion of the two-day Federal Reserve meeting for guidance on future monetary policies.

At 3:15 AM ET (0815 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 91.925, having risen for three straight sessions on support mainly from elevated U.S. bond yields.

USD/JPY was up 0.2% at 109.15, near the nine-month high hit earlier this week, and ahead of the Bank of Japan’s two-day policy meeting ending Friday.

GBP/USD rose 0.2% to 1.3915, ahead of a Bank of England meeting on Thursday, while the risk-sensitive AUD/USD dropped 0.1% to 0.7736.

The Federal Reserve concludes its two-day policy meeting later Wednesday, and is expected to update its economic forecasts to predict stronger U.S. economic growth in the wake of a ramped-up Covid-19 vaccination program and $1.9 trillion in new stimulus.

That said, “a substantial shift in tone by the FOMC appears unlikely and markets will probably remain unfussed by a mere reiteration of the “lower-for-longer” (and QE for longer) pledge despite improved recovery prospects,” said analysts at ING, in a research note.

Traders will also be looking to see whether the Fed will give any inclination to start raising interest rates in 2023, earlier than it has previously said.

“That would likely lift the dollar, which should otherwise see its upside limited given no deviation from the current ultra-dovish stance,” ING added.

Elsewhere, EUR/USD fell 0.1% to 1.1892, not far removed from last week's 3 1/2-month low of $1.1835 as concerns grow about further lockdowns in Europe and delays in vaccinations.

Late Tuesday, French Prime Minister Jean Castex said his country had entered a third wave of the Covid-19 pandemic, as the seven-day average of new cases rose above 25,000 for the first time since late November.

This comes after France, along with a few other European countries, suspended the use of AstraZeneca’s Covid-19 vaccine, against the advice of the region’s medical authorities.

“There is a risk that public trust on the vaccine has been compromised, and this may weigh on the euro as the vaccination gap between the EU and US may widen even further,” added ING.

Additionally, Brazil’s central bank meets later Wednesday, and is poised to hike interest rates by 50 basis points, becoming the first Group of 20 country to lift rates this year.

The bank is expected to do so to stem a slide in the currency that’s pushing inflation higher, driven, at least in part, by the amount the country has spent trying to shield its economy from the effects of the pandemic.

Original Article

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