Reserve policy meeting: Dollar eases, yen and Aussie dollar gain

The dollar eased versus most of its peers on Monday as investors turned their attention to this week’s Federal Reserve policy meeting, with traders wagering policymakers will signal a pause in their tightening cycle.

NAN reports that the Federal Open Market Committee meets between Jan 29 to 30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

The dollar fell 0.2 per cent versus the offshore yuan to 6.7406.

The rally in the yuan also fuelled a bounce in the Australian dollar, which gained 0.18 per cent versus the dollar to $0.7195.

Kiwi dollar strengthened by 0.3 per cent to $0.6859.

“The general direction for the dollar is still down and markets will be taking cues from the FOMC this week,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“The Fed will most likely keep rates steady this year given the state of economic growth outside the U.S.”

The dollar index, a gauge of its value versus six major peers, was marginally lower at 95.74, after falling 0.8 per cent on Friday.

A deal to reopen the U.S. government for now after a prolonged shutdown also reduced investor demand for the safety of the greenback.

‘The re-opening of Federal government after one-month shutdown fuelled ‘risk on’ rally in the US equities, and slashed demand for safe-haven currency like USD, leading to sharp decline of the dollar index last Friday,” said Margaret Yang, markets analyst at CMC Markets.

Over the past two months or so, Powell and several other Fed policymakers have taken a more cautious approach on further monetary tightening, leaving the dollar underpowered after it enjoyed a boost from the Fed’s four rate increases last year.

Traders are bearish on the dollar for 2019.

Amid a weakening global economy and U.S.-Sino trade tensions, the U.S. central bank is widely expected to hold rates steady this year to avoid hurting growth at home.

Interest rate futures markets are pricing in no rate hikes for 2019.

Investors are also anxiously waiting news from high-level U.S.-China trade talks on Tuesday and Wednesday to see if the world’s largest economies can reach a compromise that will end their trade war.

President Donald Trump has threatened to hike tariffs on Chinese goods if there is no significant progress in the negotiations.

The yen added 0.2 per cent in early Asian trade at 109.34.