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Dollar Falls as Markets Increase Bets on More Fed Easing

The U.S. dollar fell across the board on Wednesday as expectations that the U.S. central bank may hint at more policy action grew, while the Chinese yuan vaulted to its highest level since May 2019.

The Fed decision is due at 1800 GMT. Markets are keen to see the Fed’s economic projections, and particularly whether it spells out where it sees inflation headed and what exactly that means for interest rates.

“The Fed may follow up by announcing some new easing steps in accordance with its new regime though the general market consensus seems to be that it will adopt a wait and watch approach,” said Lee Hardman, a strategist at MUFG in London.

Commerzbank foreign exchange analyst Antje Praefcke argued that while prudence in trading the dollar was expected to prevail ahead of the Fed’s statement today, investors may change their minds soon after.

Elsewhere, investors were bullish on China with the prospects for the world’s No. 2 economy improving on the back of strong retail sales and industrial output data.

In offshore trade, the Chinese currency, which is on track for four straight months of gains, notched a fresh 16-month high, hitting 6.7614 per dollar.

“People are starting to embrace a new theme, which is that China is managing much, much better than anyone else,” said Davis Hall, head of capital markets in Asia at Indosuez Wealth Management.

The Japanese yen also made significant gains during the session and touched a two-week high of 105.20 per dollar.

The euro rose 0.18% to $1.1852 and sterling crept 0.12% higher to $1.2895 amid continuing uncertainty over its plans to break its Brexit treaty.

Reporting by Julien Ponthus; Editing by Saikat Chatterjee and Hugh Lawson

Source: Reuters

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