FOREX-Dollar Hovers Near Highs As Fed Moves Toward Cut
* US dollar close to 2021 highs against euro, yen
* Currency markets are calm during busy cenbank week
* The Aussie partially bounces after the fall triggered by the RBA
* Chart: Global exchange rates https://tmsnrt.rs/2RBWI5E
By Tommy Wilkes
LONDON, Nov. 3 (Reuters) – The dollar came close to recent highs against the euro and yen on Wednesday as investors waited for the US Federal Reserve to begin loosening its pandemic-era stimulus and assess the position by President Jerome Powell on inflationary pressures.
Movements have been modest in Asia and at the start of the European trading day amid a busy week for central banks, with the Bank of England meeting on Thursday.
The dollar index traded unchanged on the day at 94.11, near its 2021 high of 94.563 reached last month.
Against the euro, the greenback was also stable at $ 1.1579, close to the low of $ 1.1522 reached in October and which marked the strongest level for the dollar since July 2020.
The dollar / yen was trading at 113.94, near a four-year high.
The Fed is expected to announce the reduction of its asset purchase program by $ 120 billion per month in its policy statement at 6:00 p.m. GMT.
Traders are focusing on clues as to what this means for rate hikes, after a month of seismic bond market movements in anticipation of hikes as early as next year.
Analysts are divided on what the meeting and the Fed’s statement will mean for the dollar.
“The bearish case for the dollar today is that tapering is widely expected and that an inherently accommodating Fed, anxious to upset the bond market, does not substantially change its statement,” wrote the ING strategists.
âYet at some point the Fed will have to recognize that high inflation does not” largely reflect transient factors. “US rates and the dollar could rise.”
Investors will be watching President Powell’s assessment of inflation closely after other central banks signaled a more hawkish tilt in the face of rising price pressures, although it remains to be seen whether this means the interest rates will soon be higher.
âFed policy is being challenged in a way we can’t remember from the early Volcker years,â said Alan Ruskin, Deutsche Bank strategist.
“Inflation is taking off with an economy that has set itself at zero nominal rates and dramatic negative real rates over the past 18 months,” he said.
A day ago, the Reserve Bank of Australia abandoned its short-term yield target and dropped its expectations of keeping rates at record highs until 2024, although the Aussie fell because the bank slipped. also pushed back aggressive prices for the 2022 hikes.
The Aussie had fallen 1.2% against the dollar on Tuesday and held at $ 0.7448 on Wednesday, up 0.3% from the opening of the session. The kiwi was also dragged down 1%, but found support on Wednesday thanks to strong employment data and hovered at $ 0.7134, up 0.3%.
Money markets expect the Bank of England to rise 15 basis points on Thursday, although a weaker pound this week suggests some nervousness the BoE could disappoint.
The British pound fell to a two-week low of $ 1.3606.
(Additional reporting by Tom Westbrook in Singapore; editing by Barbara Lewis)