The dollar fell in early European trade Tuesday, sliding from a month high ahead of this week’s critical Federal Reserve meeting. At the same time, the yuan remained under pressure due to China’s Evergrande Group’s debt difficulties.
The Dollar Index, which tracks the greenback against a basket of six other currencies, was 0.1 percent lower at 93.130 at 2:55 a.m. ET (0755 GMT), after reaching 93.455 for the first time since August 23.
The Fed begins its two-day policy meeting later Tuesday. Trading ranges are likely to be confined ahead of Wednesday’s press conference. The central bank should reveal additional details about when it will begin asset cutting.
We believe there will be some recognition that the current level of monetary accommodation may no longer be appropriate and that asset purchases may begin to be reversed by year-end, wrote ING analysts in a note.
USD/JPY increased by 0.2 percent to 109.57. EUR/USD rose by 0.1 percent to 1.1736. GBP/USD increased by 0.2 percent to 1.3680. The risk-sensitive AUD/USD increased by 0.4 percent to 0.7277, recovering from a three-week low.
Meanwhile, the USD/CNY traded flat at 6.4662, having fallen as low as 6.4879 on Monday for the first time since August 23 amid concerns that China Evergrande Group may fail on future due payments due to contagion fears. The lengthy public vacation in China, which ends on Wednesday, continues to impact turnover.
Furthermore, the NZD/USD jumped 0.1 percent to 0.7028. Gains limited by Reserve Bank of New Zealand assistant governor Christian Hawkesby’s warning that the central bank will move in 25 basis point increments rather than the widely anticipated 50 basis point increase.
The USD/HUF slipped 0.1 percent to 301.24. In comparison, the EUR/HUF fell 0.1 percent to 353.32, ahead of the Hungarian central bank’s policy-setting meeting later Tuesday. The bank would hike its benchmark rate by a quarter-point to 1.75 percent on Tuesday, only marginally less than the 30 basis-point rises in each of the previous three months.
Traders anticipate a credit event. Movements in Hong Kong’s Hang Seng Index may drive the path of the Australian dollar and other commodity-linked currencies in the immediate term, according to the note. For the first time since November 2020, the dollar could reach 6.60 per yuan in the coming month.
Investors are also looking forward to the Federal Reserve of the United States’ latest policy decision, expected on Wednesday. The dollar has already benefited from expectations that the Fed may begin asset cutting sooner than planned. On Wednesday, the Bank of Japan announced its policy decision, with the Bank of England following a day later.