Dollar slips, lacking direction before Fed meeting

LONDON (Reuters) – The dollar slipped slightly on Tuesday, but currency markets generally lacked direction as market participants waited for the U.S. Federal Reserve meeting to set the tone for markets.

FILE PHOTO: U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021. REUTERS/Dado Ruvic/Illustration

At the Fed’s two-day monetary policy meeting, policymakers are expected to forecast that the U.S. economy will grow in 2021 at its fastest rate in decades, with unemployment falling and inflation rising, but are not considered likely to change their monetary policy.

The dollar index held steady overnight then rose as European markets opened, before slipping to 91.807 at 1237 GMT, down by less than 0.1% .

“Markets are in this flux period where they’re gripping on to marginal bits of information, but there’s nothing to define a new broad dollar trend until we get some more colour from the Federal Reserve tomorrow,” said Simon Harvey, FX analyst at Monex Europe.

“How the Fed delivers their message tomorrow is going to be telling for the dollar,” he said. “You’re going to start getting the first glimpses of how they interpret an average inflation target.”

Investors will also pore over whatever the Fed has to say about the rise in yields, which have gained on bets that economic growth and inflation could prompt a faster-than-expected normalisation of monetary policy.

“Anything less than a strong message of the Fed being very committed to maintaining favourable financial market conditions will likely see USD advance further,” wrote MUFG FX strategists in a weekly note on Friday.

U.S. Treasury yields slipped slightly, below their recent peaks.

U.S. retail sales fell more than expected in February but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households.

The euro was at $1.1933, flat on the day.

It has held below $1.20 since March 5, hurt by expectations for a slower economic recovery in Europe compared with the UK and the United States due to problems rolling out coronavirus vaccines.

Germany, France and Italy said on Monday they would suspend AstraZeneca COVID-19 shots after several countries reported possible serious side-effects, but the World Health Organization said there was no proven link and people should not panic.

The Australian dollar – which is seen as a liquid proxy for risk – was down 0.1% at 0.77465. The New Zealand dollar was also little changed .

Reserve Bank of Australia minutes said that the recent increase in commodity prices was unlikely to translate into a sustained rise in inflation and that members did not agree with the aggressive market pricing.

Britain’s pound was down around 0.2% at $1.3866. Economic growth in the UK will fall by 4% in the first quarter of 2021 compared with the first quarter of 2020, the governor of the Bank of England said.

The pound was also being hurt by the European Union launching legal action against Britain over a change in trading arrangements that Brussels says breach the Brexit divorce agreement.

Japan’s yen was lower against the U.S. dollar, changing hands at 108.955. The Bank of Japan’s two-day policy meeting ends on Friday. The central bank’s governor said on Tuesday that it was important to keep long-term interest rates “stably low”.

Elsewhere, Bitcoin fell to $54,764.30, having dropped from its latest record high of $61,781.83 on Saturday.

Graphic: USD –

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