Dollar Up, But Near Three-Year Lows, Fed Continues Dovish Tone

Dollar teeters, gold takes a breather as markets await Fed

FED Forex

By Administrator_India

Capital Sands

 

The U.S. dollar hovered just above a two-year low on Wednesday, while stocks struggled, as growing worries about the U.S. economy had investors cautious and looking to Congress and the Federal Reserve for a boost.

The Fed is expected to strike a dovish stance at its policy review later in the day and perhaps open the door to a higher tolerance for inflation – something dollar bears think could squash real yields and sink the currency even further.

A $1 trillion U.S. fiscal rescue package is also at an impasse as a Friday deadline to extend unemployment benefits looms.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1% as gains in China offset small losses elsewhere. Japan’s Nikkei was down 0.8% on a rising yen and weak start to corporate earnings season.

Against a basket of currencies the dollar wallowed just 0.3% above a two-year low hit a day ago. It has lost 3.7% in July so far and is headed for its worst month in nine years.

Gold steadied around $1,960 an ounce, pulling back from a $1,980 high on Tuesday but still having gained nearly $150 in eight sessions. S&P 500 futures were flat.

The Fed’s forward guidance probably determines the next move and the extension of several emergency lending facilities on Tuesday fuelled anticipation of a particularly dovish tone.

The Fed publishes its interest rate decision, which is not expected to change, at 1800 GMT and Chair Jerome Powell holds a press conference half an hour later.

Besides the Fed, the other focus is on political wrangling over the next U.S. fiscal package, which weighed on Wall Street overnight where the S&P 500 fell 0.6%.

Republicans’ $1 trillion proposal includes cutting a weekly $600 unemployment benefit, which expires on Friday, to $200 just as cracks emerge in the economic rebound.

The Democrats are pressing for a larger spending commitment, while President Donald Trump also said he didn’t like elements of the Republican plan, adding to the sense of confusion.

The euro was steady at $1.1723 while the yen was testing a new four-month top at 105.09 per dollar.

Copper prices climbed back towards a two-year high hit two weeks ago, on hopes that global stimulus would help industrial demand.

Oil prices steadied after a surprise drop in U.S. inventories pointed to energy demand, even as virus infections surge.

Brent crude futures were last up 0.2% at $43.29 per barrel and U.S. crude was flat at $41.03 a barrel.

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