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Dollar Down Ahead of U.S. Fed Policy Meeting

ForexDec 13, 2020 08:56PM ET
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By Gina Lee – The dollar was down on Monday morning in Asia, with the U.S. Federal Reserve expected to increase purchases of longer-dated Treasuries to contain a rise in yields when it hands down its policy later in the week.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies edged down 0.17% to 90.773 by 9:48 PM ET (1:48 AM GMT). The dollar index contract rolled over to the Mar. 21 contract on Dec. 13.

The dollar is also under pressure with investors expectant that the Fed will keep interest rates low for an extended period at its last policy meeting of 2020.

Investors had been retreating from the dollar as hopes for a global economic recovery from COVID-19 grew over positive vaccine news and hopes for the latest U.S. stimulus measures increasing investors’ risk appetite.

The U.S. Food and Drug Administration (FDA) approved the emergency use authorization of BNT162b2, the COVID-19 vaccine co-developed by Pfizer (NYSE:PFE) and BioNTech SE (F:22UAy), on Dec. 11.

The USD/JPY pair inched down 0.01% to 104.

The AUD/USD pair inched up 0.06% to 0.7538. The AUD was up against the dollar ahead of the release of the Reserve Bank of Australia ‘s minutes from its latest policy meeting, due on Tuesday. Investors are widely expected to scale back bets for additional monetary policies following the minutes’ release.

The NZD/USD pair was up 0.30% to 0.7091, ahead of a slew of economic data, including GDP, due later in the week.

The USD/CNY pair edged down 0.13% to 6.5359.

The GBP/USD pair rose 0.73% to 1.3320, seeing its biggest one-day gain since Dec. 1 over increased hopes that the U.K. and the European Union (EU) would reach a Brexit trade deal. Hopes were raided after both parties agreed to extend talks beyond a Sunday deadline set by both parties during the previous week.

Negotiators for both sides will “go the extra mile” in coming days to try to reach an agreement before the end-of-the-year deadline to avert a chaotic divorce between the U.K. and the EU, despite missing the latest deadline.

The U.K. has been in a transition period since it formally left the EU in January, during which rules on trade, travel and business remained unchanged as the country remained in the EU single market and customs union. However, should both sides fail to reach an agreement before the end of the month, around $1 trillion in annual trade from tariffs and quotas, businesses on both sides would be left unprotected and at risk.

Some investors said that the pound is more vulnerable to selling than the euro, warning that the pound’s rally is not likely to last. Both sides have yet to narrow their differences on a variety of issues, including fishing rights, and the risk that they will not reach a deal before the deadline remains.

“This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided … a partial deal with an agreement to negotiate further next year might save the pound, but anything less would lead to renewed selling. I would not buy sterling from here,” IG Securities senior foreign exchange strategist Junichi Ishikawa told Reuters.

Dollar Down Ahead of U.S. Fed Policy Meeting

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