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Dollar precarious as Fed decision expected

Chris Lee

The US dollar hovered in a precarious position on Wednesday morning as traders in the foreign exchange markets waited nervously for the outcome of a central bank meeting in the country.

The Federal Reserve began its two-day meeting yesterday and is expected to release its decisions later on Wednesday.

There was some speculation in the financial press on Wednesday that the Fed could choose to take action that has the practical consequence of limiting the values of bond yields.

Certain bond yields have gone up significantly recently, which has had a knock-on positive effect for the dollar.

This has been fuelled by small steps towards growth for the US economy in the aftermath of the coronavirus pandemic – though many were at pains to point out that the worst is far from over.

Overall, however, it was not expected that the Fed would announce major steps beyond yield curve control, and analysts were divided on whether even these would materialise.

Some suggested that this could be a future move rather than one taken today, especially given that the currency and economy have only just crossed from pandemic territory to where they are now.

As usual, traders are likely to keep an eye on the statement provided afterwards by senior policymakers to look for any clues about the Fed’s future plans.

The dollar held relatively steady against the Japanese yen as trading got underway in Asia.

It was spotted at 107.72 yen in this pair, which came after a decline of just over half a percentage point based on the previous day.

However, in other pairs, the dollar was not able to see huge successes.

It continued to languish in its pair against the British pound, where it was seen stuck at around $1.2732 – which was near to its worst position in three months or so.

Against the Swiss franc, meanwhile, the dollar was reeling from a dip of 0.7% and was seen at 0.9512.

The franc is designated as a safe-haven currency by traders, which means that it frequently rises during times of turmoil.

The same, though, supposedly applies to the Japanese yen, which the dollar was holding relatively strongly against.

The expectation-defying nature of the dollar’s performance recently can be attributed to a number of factors, including the country’s ongoing political instability, with a presidential election due in months.

It also continues to deal with the fallout of the coronavirus pandemic and with periodic skirmishes against China.

Elsewhere, the run of success for the Antipodean currencies appeared to be over.

Both the Australian and New Zealand dollars have enjoyed a period of rising values in recent weeks.

However, they began to retreat a little by the time Wednesday’s trading was underway.

The Australian dollar was seen at $0.6958 against the greenback.

The New Zealand dollar was at $0.6961 in this pair.

It came in part after it was revealed that there are fears around the state of the relationship between China and Australia.

China is one of the latter’s main trading partners.

 

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Chris Lee
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