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Fed meeting looms as dollar shows nerves

Chris Lee

US Federal Reserve on dollar bill

Traders appeared to be nervous when it came to the US dollar on Wednesday ahead of a crucial meeting of the American central bank.

The Federal Reserve is meeting this week to discuss what stimulus measures, if any, might be needed to help tackle the coronavirus pandemic.

While the bank is not expected to change overall monetary policy, it is expected by some traders to release hints about where policy direction could go in the months to come.

It has already made a significant number of urgent moves in response to the coronavirus pandemic, including a major backstopping of credit markets.

The Federal Reserve has also purchased a number of bonds, and reduced interest rates to low levels.

However, the looming meeting contributed to a general sense of dollar aversion for many traders.

The greenback had previously seen traders from across the globe flock to it as the coronavirus pandemic took hold, particularly given that it can be converted into cash with relative ease.

The dollar has since dropped by well over 3% after it reached a peak towards the end of March.

This peak from several weeks ago, 102.99, was noted in the dollar index metric – which is a tool used by traders to help them understand how the dollar is performing on a composite basis against several other major international currencies.

In addition to the fears around the Federal Reserve meeting, this decline for the dollar in recent days also appeared to be partly due to an improving stock market outlook.

Stock futures in the US as tracked by the ESc1 measure rose by over half a percentage point.

The general sense of positivity was buoyed by the news that a number of major economies across the globe were about to begin easing lockdown measures.

The Australian dollar, which is often seen as a risky investment due to the currency’s reliance on exporting in particular to China, was up by 0.6% against the dollar.

It was spotted at $0.65433 in this pair at one stage.

Overall, the US dollar index measure was down by 0.3% and rested at 99.60.

This represented a slight rise from its position of 99.43 – a fortnightly low which it reached the day before.

As well as the Federal Reserve’s decision, the US will also have to contend with an economic data release that could reveal problems.

A key gross domestic product metric will be out at 12:30pm GMT, and there has been some suggestion by analysts that the drop could be severe.

Overall, a contraction of approximately 4% is expected.

The Federal Reserve’s decision will not be the only global central bank to make big decisions this week.

Traders appeared to be nervous when it came to the US dollar on Wednesday ahead of a crucial meeting of the American central bank.

The European Central Bank will meet on Thursday, although the single European currency markets appear to be relaxed about this development.

The euro was up by 0.4% against the dollar, reaching $1.0862 at one point over the course of the day.

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Chris Lee
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