Dollar near strongest level since April ahead of Fed meeting

by Jonathan Adams
Fed meeting

The dollar index was at 92.920 at the start of the week, off from last week’s 3-1/2-month high of 93.194

The U.S. dollar hovered near its strongest level since early April against the euro on Monday, as financial markets looked ahead to the Federal Open Market Committee (FOMC) meeting this week for clues on stimulus tapering.

The greenback was also near a 12-day high on the safe-haven yen as record-high U.S. equity markets buoyed risk sentiment.

The dollar index was at 92.920 at the start of the week, off from last week’s 3-1/2-month high of 93.194. It was still up about 3.8% from a recent low on May 25 as an improving U.S. economy bolstered the outlook for the US Fed to start paring asset purchases as early as this year.

Commonwealth Bank of Australia (CBA) projects the dollar can continue to strengthen this week on the possibility of the Fed moving a step closer to tapering at the conclusion of its two-day policy meeting on Wednesday.

We expect the FOMC to drop ‘substantial’ from ‘substantial further progress’ in its guidance on the necessary conditions for the labour market before removing monetary support, CBA strategist Joseph Capurso wrote in a client note.

Removing ‘substantial’ will signal the FOMC believes it will soon be appropriate to taper asset purchases, setting up a possible announcement of a taper in September, he said.

The dollar was little changed from Friday at $1.17655 per euro, near the high from last week of $1.1752, a level not seen since April 5.

It bought 110.56 yen, approaching the peak of 110.58 from Friday, which was the highest since July 14.

The Australia dollar dropped 0.1% to $0.7356, after dropping to an almost eight-month low of $0.72895 last week.

The British pound stood at $1.3745, little changed from last week, when it bounced $1.3787 from a nearly six-month low of $1.35725 hit just two days earlier.

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