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Dollar sellers return with an eye on the Fed

Forex Nov 30, 2020 07:55PM ET
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© Reuters. FILE PHOTO: FILE PHOTO: U.S. dollars are counted out by a banker at a bank in Westminster

By Tom Westbrook

SYDNEY (Reuters) - The dollar was under pressure on Tuesday, after closing out its worst month since July with a little bounce and as investors reckon on even more U.S. monetary easing.

The risk-sensitive Australian and New Zealand dollars clawed back some of Monday's losses, each rising roughly 0.2% early in the Asia session, although both remained just below milestone peaks hit a day ago.

The euro rose 0.1% but kept shy of $1.20, while sterling held on to gains made against the dollar as traders cling to hopes for a Brexit trade deal before the year's end.

Investors are heavily short dollars as optimism about promising vaccine trials drives buying of riskier currencies and higher yielding assets outside the United States.

Even worries about rising coronavirus cases have not offered too much support to the greenback, as speculation grows that the Federal Reserve might act to support the economy through a tough winter before vaccinations can turn the tide on the pandemic.

"There's a general view that there'll be something in the December meeting...given there's no real fiscal development in the last few months," said BNZ senior markets strategist Jason Wong.

The Fed meets to set policy on Dec. 15 and 16, though before then - on Tuesday and Wednesday - Fed Chair Jerome Powell will appear before Congress and his remarks will be closely watched for any clues as to the next moves.

The policymakers gather as authorities mull approving two effective vaccines, developed by Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) for distribution, but as surging virus cases put the brakes on the U.S. economic recovery.

Dallas Fed President Robert Kaplan said on Monday that difficult months lie ahead. "We're bracing ourselves here," he said, adding that the central bank is open-minded about shifting or even expanding its bond buying programme.

"We are going to have to figure out whether it's in the December meeting or a future meeting," he said.

Against a basket of currencies the dollar was steady at 91.942. The safe-haven Japanese yen held its ground at 104.33 per dollar.

Elsewhere in Asia, the South Korean won, which is up more than 7% on the dollar since September, recouped half of a 0.4% drop made on Monday. The Chinese yuan was firm in offshore trade following solid economic data on Monday.

The Reserve Bank of Australia announces the outcome of its final policy meeting for the year at 0330 GMT, though traders expect no changes and few surprises. European inflation figures and U.S. manufacturing data is due later on Tuesday.

Britain and the European Union also warned each other on Monday that time was running out to reach a Brexit trade deal, though investors remain hopeful and have kept the pound at $1.3337 and 89.48 pence per euro.

Talks between EU chief negotiator Michel Barnier and British chief negotiator David Frost are ongoing and the EU team are expected to stay in London for two or three more days.

Dollar sellers return with an eye on the Fed

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Comments (1)
Joel Schwartz
Joel Schwartz Nov 30, 2020 10:27PM ET
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How does the dollar’s worst month occur simaltaneously as gold’s worst month since 1987? Is this peak “risk off” behavior? Is everyone investing un-hedged at this point? What happens next?
Clyde Cruz
Clyde Cruz Nov 30, 2020 10:27PM ET
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good question.I wish I knew
Flaviano Morone
Flaviano Morone Nov 30, 2020 10:27PM ET
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If gold and usd go down (or up) together, they cannot be causally related, so the correlation you see is just telling you that they do not have a common cause, but two (or more) indipendent causes. The cause of last month gold downward move, from usd perspective, is like random noise, and viceversa. When you say “how does dollars and gold simoultaneously etc etc...” you are mentally doing the following operation: you take usd and gold and find out they moved in the same way last month. You want to explain the correlation as a cause-effect relationship. You cant find it because they have no causality, so you invent one yourself (the “common” cause): gold is down cuz of people taking more risk. Causality in this case is in your mind only. You created a narrative about risk, investing un-hedged, and so on, by assuming a non-existing interaction.
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