On Wednesday, the dollar floated near recent peaks versus the euro and the yen as investors anticipated the U.S. Federal Reserve to begin unwinding its epidemic-era stimulus and value Chair Jerome Powell’s take on inflationary pressures.
Moves were modest in Asia and at the origin of the European trading day in the middle of a busy week for central banks, with the Bank of England conference on Thursday.
The dollar index traded fixed on the day at 94.11, near its 2021 peak of 94.563 hits last month.
Versus the euro, the dollar was also even at $1.1579. It was near the October $1.1522 low. It recorded the most substantial level for the dollar after July 2020.
Dollar/yen traded at 113.94, near a four-year high.
The Fed should announce the tapering of its $120 billion-a-month asset acquisition program in its policy statement at 1800 GMT.
Traders focus on clues around what that means for rate increases following a month of seismic bond market moves in anticipation of hikes as soon as next year. [U.S./]
Analysts can’t agree as to what the Fed meeting and statement will indicate for the dollar.
Assessment of inflation awaited
Investors will closely observe Chair Powell’s assessment of inflation following other central banks that have signaled a more hawkish fall in the face of rising price pressures. Nevertheless, whether that implies higher interest rates early is still to be perceived.
According to Deutsche Bank (DE: DBKGn) strategist Alan Ruskin, Fed Policy has been challenged in ways that cannot be remembered after the early Volcker years.
He added that inflation is taking off with an economy assessing zero nominal rates and dramatic negative real rates for the last 18 months.
A day ago, the Reserve Bank of Australia dropped its short-term yield target and cut its expectation of holding rates at record lows until 2024. Nevertheless, the Aussie fell because the bank also started back on competitive pricing for 2022 hikes.
The Aussie had fallen 1.2% versus the dollar on Tuesday and remained at $0.7448 on Wednesday, up 0.3% from the session open. The kiwi also moved 1% below. However, it found support on Wednesday from robust labor data and floated at $0.7134, up 0.3%. [AUD/]
Money markets are rating in a 15 basis point hike from the Bank of England on Thursday. However, a lower pound this week proposes some excitement that the BoE could disappoint.
Sterling dropped to a two-week low at $1.3606.
