Dollar at month-high ahead of Fed meeting

by Jonathan Adams

The Fed concludes a two-day meeting on Wednesday and consensus is that it will stick with plans for tapering this year

The dollar rallied to a month-high in Asia on Monday as looming catastrophe at indebted developer China Evergrande added extra nerves to a cautious mood, with investors expect the Federal Reserve to move closer to tapering this week.

In trade thinned by holidays in Japan, China and South Korea, the euro dropped 0.1% to $1.1710, its lowest since late August.

The Australian dollar dropped 0.5% to a three-week low of $0.7227 while sterling and the kiwi also hit multi-week lows on the rising greenback. The dollar index increased 0.1% to 93.356, its highest since Aug. 23.

The U.S. dollar is having a bit of a rebound, said Westpac analyst Imre Speizer, drawing support, he added, both from an expectation of imminent asset purchase reductions from the Fed and from caution as stock market selling gathers pace. Everyone is eying the Fed, waiting for a tapering signal.

The yen held its own, edging up 0.1% to 109.88 per dollar, while equity markets fell with concern that an Evergrande collapse could trigger a broader crisis.

Onshore Chinese markets were shut for the mid-Autumn break but the offshore yuan dropped through its 200-day moving average to a three-week low of 6.4848 per dollar.

At 0330 GMT, sterling was 0.1% lower at $1.3709 and the kiwi 0.14% lower at $0.7024. The dollar also made broad gains against emerging markets’ currencies.

Ahead this week, a dozen central banks hold meetings, but traders’ top focus is on the Fed where expectations for a tapering signal are keeping the dollar bid.

The Fed concludes a two-day meeting on Wednesday and consensus is that it will stick with broad plans for tapering this year but will hold off providing details or a timeline for a at least a month.

Creeping U.S. yields, however, point to risks of a hawkish surprise or a shift in projections to show hikes as soon a 2022, both of which could support the dollar.

What the dollar bulls will be looking for is for the dot plot to show a 2022 lift-off, said analysts at OCBC Bank in Singapore, something which would need only a change of mind from two or three Fed members.

This would represent an extension of the hawkish-Fed, dollar-positive narrative that had ran slightly out of steam by August, they said.

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