Dollar Up, Major Currencies on Hold as Investors Await Fed Policy Decision

Dollar Up, Major Currencies on Hold as Investors Await Fed Policy Decision

Dollar Up, Major Currencies on Hold as Investors Await Fed Policy Decision © Reuters.

By Gina Lee – The dollar was up on Wednesday morning in Asia, with other major currencies holding tight ranges ahead of the U.S. Federal Reserve’s policy decision later in the day.

The U.S. Dollar that tracks the greenback against a basket of other currencies inched up 0.03% to 91.903 by 12:59 AM ET (4:59 AM GMT). The index has risen for the past three sessions, boosted by U.S. bond yields that are climbing as expectations of a strong economic recovery grow.

The USD/JPY pair edged up 0.13% to 109.12.

The AUD/USD edged down 0.12% to 0.7735 and the NZD/USD inched down 0.07% to 0.7184.

The USD/CNY pair inched down 0.04% to 6.5024, while the GBP/USD pair inched up 0.05% to 1.3895.

The Fed decision is widely expected to match the rosy view, with investors watching for any indications the central bank could start rate hikes earlier or let bond yields rise further.

Fed Chairman Jerome Powell is expected to forecast that the U.S. economy will grow in 2021 at the fastest rate in decades, as the COVID-19 vaccination rollout gathers pace and U.S. households start to benefit from a $1.9 trillion stimulus package signed into law during the previous week.

The more pertinent question for investors is whether the Fed will give any inclination to start raising interest rates in 2023, earlier than it has previously said. Such a move could drive a further rally in the dollar.

“The Fed will likely revise up its economic forecast. But for its median forecast on the Fed funds rate in 2023 to be raised, four or more members have to raise their projections. So the market’s expectations of earlier rate hikes may not be validated by the Fed,” Barclays (LON:BARC) senior currency strategist Shinichiro Kadota told Reuters.

“But on the other hand, the Fed is likely to sit idle on rising long-term rates as well. All considered, it is hard to expect the dollar/yen to weaken after the FOMC, though it could face more headwinds if it tests new highs,” Kadota added.

The Bank of England and the Bank of Japan will hand their own decisions down on Thursday and Friday respectively.

The euro was at $1.1903, after its downward trend over the last three days, with Sweden and Latvia the latest countries to suspend usage of the AstraZeneca PLC (LON:AZN)/University of Oxford COVID-19 vaccine over potential side effects concerns. The growing list of countries doing the same is dealing a further blow to Europe’s vaccine rollout.

The European Medicines Agency will release the results of its side effects investigation on Thursday.

“Depending on the outcome, it could hurt the euro zone’s business sentiment further and the euro could face fresh selling pressure on the low vaccination theme,” Sumitomo Mitsui (NYSE:SMFG) Bank chief strategist Daisuke Uno told Reuters.

Original Article

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