The U.S. dollar steadied above a five-month trough against major peers on Tuesday as investors awaited the latest economic projections from the Federal Reserve amid concerns about the impact of intensifying global trade tensions.
The euro held below last week’s peak of $1.0947, its strongest since October 11, ahead of an expected vote on Germany’s massive stimulus proposal, while the yen gave up some of its recent gains on safe-haven bids.
Fears that U.S. President Donald Trump’s aggressive tariff policies could trigger a broader economic slowdown have undermined the greenback amid a string of soggy sentiment surveys.
The Fed is among a handful of central banks expected to stand pat on rates at their meetings this week, along with the Bank of Japan and Bank of England, keeping markets focussed on any forward guidance from officials.
The U.S. central bank will also publish new economic projections, offering investors the most tangible evidence yet of how U.S. central bankers view the likely impact of the Trump administration’s policies on the economy.
Inflation expectations have gone up, but sentiment has gone down…It’s a very confusing point in time, and the Fed, I don’t think they have enough data either way,” said Bart Wakabayashi, Tokyo branch manager at State Street.
Markets are hedging their bets, currently pricing in about 60 basis points of Fed cuts, a little over two reductions, for the rest of the year.
While there’s a risk of projections staying at two more cuts this year with the Fed expected to revise up the inflation outlook, Citi FX strategists believe the central bank is more likely to lean dovish.
“If faced with lower growth/employment and higher inflation, we suspect the Fed will err on the side of caution and towards the growth/employment picture,” they wrote in a research note
The dollar index , which measures the currency against six key rivals, has dropped around 6% from the more than two-year peak of 110.17 hit in mid-January.
It was last up 0.13% at 103.59, struggling to make a decisive move away from a five-month low of 103.21 touched last Tuesday.
The euro was a touch softer on the day at $1.0907.
Germany’s constitutional court on Monday threw out new challenges by opposition parties against a plan by the prospective coalition government to push a massive public borrowing initiative through the outgoing parliament.
The decision paved the way for parliament to convene on Tuesday to consider the matter.
In Asia, the yen pulled back from last Tuesday’s peak of 146.545 per dollar, its strongest since October 4, as the risk-off mood eased.
SOURCE; REUTERS
