Home Forex Dollar lower on bets Fed will shun tapering bond purchases

Dollar lower on bets Fed will shun tapering bond purchases

by Jonathan Adams
Dollar

U.S. Federal Reserve Chairman Jerome Powell is likely to face questions over whether improving labour market and rising coronavirus vaccinations warrant a withdrawal of monetary easing

The dollar inched lower on Monday on speculation that U.S. Federal Reserve Chairman Jerome Powell will shun talk of tapering bond purchases at a policy meeting this week.

The euro advanced to a near two-month high against the greenback before data later on Monday forecast to show an improvement in German business sentiment, which would boost hopes for a brighter economic outlook.

Powell is likely to face questions over whether an improving labour market and rising coronavirus vaccinations warrant a withdrawal of monetary easing, but most analysts expect him to say such talk is premature, which would put downward pressure on Treasury yields and the dollar.

The dollar is likely to continue to trend lower in line with the gathering momentum in the world economy, analysts at Commonwealth Bank of Australia wrote in a research note. We expect the Fed policy meeting to be a non-event for the dollar. The U.S. economy is a long way from meeting the ‘substantial further progress’ threshold for the Fed to taper its asset purchases.

The dollar was at 107.75 yen, near its lowest since March 4.

The euro advanced to $1.2110, adding to gains made on Friday after positive data on European services and manufacturing activity.

A survey from Germany’s Ifo institute due later on Monday is expected to show business conditions continued to improve in the country.

The British pound was quoted at $1.3897, adding to a 0.3% gain in the previous session.

The dollar was little changed at 0.9128 Swiss franc, near a two-month low.

The Fed’s next meeting ends on Wednesday, and while no major policy changes are expected, investors will pay close attention to Powell’s comments after the meeting.

Rising coronavirus vaccination rates and an improving economic outlook are reasons to be optimistic, but many traders and analysts say Powell is likely to reiterate his commitment to keep easy policy in place for an extended period.

U.S. funds have been selling the dollar against the yen recently in Asian trading, which is an additional sign that major investors expect lower U.S. Treasury yields to push the dollar lower, some traders in Tokyo said.

In emerging markets, traders are watching the Turkish lira to see if it will test its all-time low of 8.58 per dollar due to worsening relations with the US and worries about a dovish central bank governor. The lira was quoted at 8.4285.

The onshore yuan inched up to 6.4866 per dollar, just short of a six-week high.

Elsewhere, the Australian and New Zealand dollars rose toward one-month highs but are likely to track moves in global commodity prices, traders said.



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