Dollar Down, but Stablilzes Ahead of Fed Policy Decision

Dollar Down, but Stablilzes Ahead of Fed Policy Decision
Credit: © Reuters.

By Gina Lee – The dollar was down on Tuesday morning in Asia, remaining below record highs. The U.S. Federal Reserve will meet to hand down its latest policy decision , while concerns about the spread of COVID-19 cases globally also remain.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.04% to 9.610 by 1:33 AM ET (5:33 AM GMT).

The USD/JPY pair inched down 0.10% to 110.23

The AUD/USD pair inched down 0.10% to 0.7372 and the NZD/USD pair edged down 0.16% to 0.6992.

The USD/CNY pair inched down 0.08% to 6.4776 and the GBP/USD pair inched up 0.09% to 1.3828. The pound was above its 20-day moving average, and near a one-week high at $1.3827, as daily numbers of COVID-19 cases in the U.K. started a slow decrease.

Fears that the Fed will begin asset tapering sooner than expected have given the U.S currency a boost for more than a month. Positioning data also said that investors turned long dollars for the first time since March 2020 during the previous week.

Investors now await the Fed’s policy decision, which will be handed down on Wednesday at the conclusion of a two-day meeting that starts later in the day. Speculation as to when the Fed will begin asset tapering and its comfort level with rising inflation, and the impact of the central bank’s decision on currency markets, remained high.

Commonwealth Bank of Australia (OTC: CMWAY ) strategist Joe Capurso said a hint that asset tapering could soon begin would lift the dollar. Meanwhile, Standard Chartered (OTC: SCBFF ) head of G10 FX research Steve Englander said that clues on the Fed's thinking about a sharp but likely transitory jump in inflation will be just as important.

"We expect that Fed Chairman Jerome Powell will convey more patience than many recent Fed speakers about bringing inflation lower, as long as domestic economic conditions still point to labor market slack," said Englander in a note.

"A dovish lean by Powell will likely push up longer-term interest rates... because of a rally in inflation breakevens and a reduction in market fears about slower medium-term growth... paradoxically, this is likely to be dollar-negative because global uncertainty on the policy response to higher inflation would be reduced," the note added.

However, the surging number of COVID-19 cases involving the Delta variant globally and sharp falls in Chinese shares following a crackdown in several sectors led to cautious trading during the Asian session.

In cryptocurrencies, bitcoin dropped to $37,000 from Monday's peak of above $40,000, with Amazon (NASDAQ: AMZN ) denying recent reports that said the company was preparing to accept cryptocurrencies as a method of payment.

"Speculation that has ensued around our specific plans for cryptocurrencies is not true... but we remain focused on exploring what this could look like for customers shopping on Amazon,” said a company spokesperson.

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