Dollar Down Ahead of Fed Meeting

© Reuters.

By Gina Lee

Investing.com – The dollar was down on Wednesday in Asia, with investors fine-tuning their positions ahead of a U.S. Federal Reserve policy meeting.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies inched down 0.03% to 93.085 by 9:76 PM ET (2:57 AM GMT), giving up some earlier gains. The USD/JPY pair was down 0.15% to 105.28.

The Fed will meet later in the day to hand down its policy decision, its first meeting since Fed Chairman Jerome Powell announced a more relaxed approach to inflation at the Jackson Hole symposium on August 27. This stance is widely expected to be continued and may weaken the greenback with the introduction of further stimulus measures.

However, some investors disagreed with those expectations.

“There’s a feeling in the market that maybe the Fed will try to act on its dovish tilt,” National Australia Bank (OTC:NABZY) senior currency analyst Rodrigo Catril told Reuters.

“Our sense is that there’s a risk there that the Fed doesn’t do much more than what it’s done already,” he added, possibly lifting U.S. yields and weighing on the yen.

The policy decision is also expected to introduce longer tenors for the Fed’s bond-buying program. Other areas of interest to investors are the Fed’s economic projections, particularly on inflation and its direction.

“The three to 3.5-year projection horizon will give (Fed members) an opportunity to indicate how big an overshoot they expect will be required to get to the 2% average inflation target … it will also give (them) an opportunity to indicate how much of an overshoot they are willing to tolerate,” Standard Chartered (OTC:SCBFF) head of FX research Steve Englander told Reuters.

The Bank of Japan and Bank of England will also hand down their respective policy decisions on Thursday.

The AUD/USD pair edged up 0.12% to 0.7309 and the NZD/USD pair inched up 0.01% to 0.6722.

The USD/CNY pair edged down 0.15% to 6.7699. The yuan continued to bask in the wake of Tuesday’s economic data indicating growth in industrial production and retail sales year-on-year, as well as pointing to China’s continuous economic recovery from COVID-19. The data also boosted investor hopes for a global recovery from the pandemic.

The GBP/USD pair edged up 0.22% to 1.2915. The pound rose on the back of Tuesday’s better-than-expected job figures, as well as opposition to a bill proposing to break the U.K.’s Brexit treaty with the European Union (EU). The U.K. will release a slew of data for August, including the consumer price index, later in the day.