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Dollar settled against forex near recent peaks as Fed traders await

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Written by Tom Westbrook


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SINGAPORE (Reuters) – The U.S. dollar shaved off its recent highs on Tuesday, as investors turned to this week’s Federal Reserve meeting for clues on the policy outlook, while cryptocurrencies fell sharply from an attempt to burst out of a months-lengthy range.

The dollar settled at $1.1809 per euro in Asia, finding support following a slight dip on Monday.

It bought 110.18 yen, and the Australian and New Zealand dollars kept little gains made on Monday.

The US currency rose broadly for more than a month as markets became wary of the Federal Reserve starting to scale back monetary support. Investors turned lengthy dollars for the first time since March 2020 final week, positioning data shows.

The Federal Reserve’s meeting is taking place on Wednesday and the focus is on discussions about bond-buying and insight into the bank’s relief from rising inflation, with currency markets results unclear.

Joe Capurso, chief strategist at the Commonwealth Bank of Australia, said a hint that tapering might start soon would lift the dollar.

However, Steve Englander, head of FX research at Standard Chartered Group of Ten, said guiding the Fed’s thinking about a sharp but temporary jump in inflation would be just as significant.

“We expect Federal Reserve Chair (Jerome) Powell to be more patient than many of the unused Fed speakers on lowering inflation, as lengthy as domestic economic conditions persevere to point to a stagnant labor market,” Englander said in a note to clients.

“Powell’s pessimistic inclination is likely to hoist lengthy-term interest rates…due to higher inflation and lower market concerns about slower growth in the medium term.

“Ironically, this is likely to be negative for the dollar as global uncertainty about the policy response to higher inflation will decrease,” Englander said.

A rise in inflation expectations on Monday pushed US 10-year real yields to a record low of -1.123 percent, which also contributed to the dollar’s weakness overnight.

The US Dollar Index fell 0.3% on Monday and final settled at 92.600.

Elsewhere, concern over the spread of the coronavirus delta variant and jitters in the Chinese stock market kept trading cautious during Asian hours. The risk-sensitive Australian dollar settled at $0.7382 and the New Zealand dollar settled near $0.7000.

Sterling was overhead its 20-day moving average and close to a one-week lofty of $1.3827 as beforetime data appeared to show a decline in the rise in COVID-19 cases in Britain despite the removal of several social restrictions final week.

The Chinese yuan held on despite the commotion in equities and settled at 6.4760.

Bitcoin fell sharply to $37,000 from Monday’s peak overhead $40,000 following offered a competent disapproval of a weekend news report that said it was preparing to accept cryptocurrencies.

“The speculation that has arisen about our specific plans for cryptocurrency is incorrect,” a company spokesperson said.

“We’re still focused on exploring what this might look like for customers who shop on Amazon.”

(Reporting by Tom Westbrook; Editing by Ana Nicholas da Costa)

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