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Dollar Down Over Bets that Fed Will Continue to Avoid Tapering

ForexApr 26, 2021 01:37AM ET
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By Gina Lee – The dollar was down on Monday morning in Asia as speculation mounts that the U.S. Federal Reserve will shun talk of tapering bond purchases when it hands down its policy decision later in the week.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.13% to 90.718 by 13:29 AM ET (5:29 AM GMT).

The USD/JPY pair edged down 0.16% to 107.73, with the dollar close to its lowest level against the Japanese currency since Mar. 4.

The AUD/USD pair gained 0.37% to 0.7773 and the NZD/USD pair was up 0.34% to 0.7212.

The USD/CNY pair inched down 0.09% to 6.4886 while the GBP/USD pair was up 0.21% to 1.3904.

The Fed will hand down its decision, which is widely expected to keep to the status quo, on Wednesday. Investors will, however, pay close attention to Fed Chairman Jerome Powell's replies to the questions he will likely face over whether an improving labor market and rising COVID-19 vaccinations could lead to a withdrawal of monetary easing.

If Powell reiterates his commitment to maintaining an easy monetary policy for an extended period, it could exert further downward pressure on the U.S. currency and Treasury yields.

"The dollar is likely to continue to trend lower in line with the gathering momentum in the world economy," Commonwealth Bank of Australia (OTC:CMWAY) analysts said in a note.

"We expect the Fed policy meeting to be a non-event for the dollar. The U.S. economy is a long way from meeting the 'substantial further progress' threshold for the Fed to taper its asset purchases,” the note added.

Across the Atlantic, the euro climbed to a near two-month high against the greenback ahead of the release of Germany’s Ifo Business Climate Index later in the day.

The euro rose to $1.2105, adding to gains made on Friday on the back of better-than-expected manufacturing and services Purchasing Managers Indexes.

U.S. funds have recently started selling the dollar against the yen in Asian trading, another sign of expectations that lower U.S. Treasury yields will push the dollar down even lower, according to some investors.

U.S. Commodity Futures Trading Commission data also pointed to a three-week high in speculators' net bearish bets on the dollar, indicating further declines for the greenback.

An emerging markets currency of interest currently is the Turkish lira, with investors waiting to see if it will test its record low of 8.58 against the dollar as relations with the U.S. sour and Central Bank of the Republic of Turkey governor Sahap Kavcioglu’s dovish stance.

In cryptocurrencies, bitcoin topped the $50,000 mark and smaller rival Ether also gained, recouping some of their losses from the previous week over U.S. President Joe Biden's proposal to raise capital gains taxes for wealthy investors.

Dollar Down Over Bets that Fed Will Continue to Avoid Tapering

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