Dollar Down but Moves Remain Small Ahead of Fed Policy Meeting

© Reuters.

By Gina Lee

Investing.com – The dollar was down on Tuesday morning in Asia, remaining below a one-month high. Investors now await the start of the U.S. Federal Reserve policy meeting and its policy decision, due to be handed down on Wednesday.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.05% to 90.442 by 13:03 AM ET (5:03 AM GMT). The index was flat at 90.517 as the Asian session got underway, after briefly climbing above 90.60 in each of the past two sessions. The 90.63-mark would have been its strongest level since May 14, 2021.

The USD/JPY pair inched up 0.03% to 110.09.

The AUD/USD pair inched down 0.01% to 0.7711 and the NZD/USD pair was up 0.21% to 0.7155.

The USD/CNY pair edged up 0.12% to 6.4043 and the GBP/USD pair inched down 0.01% to 1.4110.

Investors closed short positions ahead of the two-day Fed meeting that begins later in the day and will be on the lookout for any clues on when the central bank will begin to taper dollar-depreciating stimulus.

Fed officials, led by Chairman Jerome Powell, have so far insisted that any inflationary pressure is temporary, and that the current dovish monetary policy will remain in place for some time to come.

However, moves remained small after recent economic data, including the consumer price index, led to mounting concerns of an earlier-than-expected stimulus withdrawal. The European Central Bank also maintained a dovish tone as it met and handed down its policy decision during the previous week.

"While Powell will tread carefully, I expect that the Fed is warming to a more open discussion about tapering, to be formally announced in the September meeting," Pepperstone head of research Chris Weston said in a note.

"Any view that cements a formal announcement in September should be modestly dollar bullish, but the risks are symmetrical as Powell will be keen to not hurt financial conditions," the note added.

Investors now widely expect a tapering announcement in the next quarter, even as the U.S. job market recovery remains patchy.

On the central bank front, the Reserve Bank of Australia released the minutes from its latest meeting earlier in the day. The Swiss National Bank and Norges Bank will hand down their policy decisions on Thursday, followed by the Bank of Japan on Friday.

Investors also await the U.S. producer price index, alongside retail sales and industrial production figures, which will be released later in the day.

In cryptocurrencies, bitcoin climbed above $41,000 for the first time in more than two weeks during the previous session. Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk tweeted earlier in the week that the company would resume allowing bitcoin transactions once miners verify that these use more renewable energy.