The dollar climbed up on Wednesday, its index trading at 91.004 after plunging to the low of 90.679 on Monday. This is its weakest level since March 3. Traders are waiting to see how the U.S. Federal Reserve’s policy meeting ends today. They are also looking forward to President Joe Biden’s speech later on Wednesday. Despite the dollar’s rally, investors are not convinced that a recent downtrend had ended.
Westpac strategists noted that the backdrop for the greenback is an unappetizing one. According to them, the gauge will likely drop toward 90 this week.
Still, the dollar declined mostly due to the receding bets that the Fed could start laying the groundwork for future policy tightening as the U.S. economy hastens its recovery. Traders widely expect the U.S. central bank to maintain its policy settings. Fed Chairman Jerome Powell will probably repeat his dovish message, as well.
On the other hand, some analysts think that signs of rising inflation expectations may push the Fed to abandon its stand that a policy tightening is still early.
Last year, the Fed declared that it plans to bring average inflation to around 2%, even allowing it to overshoot above 2%, instead of trying to cap it around 2%.
How Are the Euro and Other Currencies Faring?
The Euro tumbled down by 0.2% to $1.2073 on Wednesday, lowering from Monday’s two-month high of $1.2117.
The greenback traded at 108.855 yen after jumping by 0.59% overnight. The dollar extended its rebound from a seven-week low of 107.48 reached last week.
Meanwhile, the yen declined as recent surges in COVID-19 cases weighed on Japan’s economy. The Bank of Japan announced that inflation would likely fail to reach its key 2% target through early 2023.
The Japanese currency plummeted down even against low-yielding European currencies. It plunged to a 2-1/2-year low versus the Euro and a five-year low on the Swiss franc. Hence it was trading at 131.57 per Euro and 119.08 per franc.