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FOREX-Dollar edges before Fed meeting, euro slips

ForexJan 27, 2021 10:18
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© Reuters.

* Dollar edges up
* Euro down 0.1%
* Sterling hits April 2018 high
* Graphic: World FX rates

By Ritvik Carvalho
LONDON, Jan 27 (Reuters) - The dollar edged higher against a
basket of currencies on Wednesday as markets waited for comments
from Federal Reserve Chair Jerome Powell, who is likely to renew
a commitment to ultra-easy policy. The dollar reversed declines against riskier currencies,
even as pandemic recovery hopes got a boost from the
International Monetary Fund's upgrading its forecast for 2021
global growth. Treasury yields, whose rise had supported the dollar at the
start of this year, declined overnight amid caution about the
eventual size of and delays to President Joe Biden's $1.9
trillion fiscal stimulus plan. "While the Fed had been consistent for the past few months
that the balance of risks was still to the downside, we could
see a more neutral stance being taken," said John Velis, FX and
macro strategist at BNY Mellon.
"This would be seen as a marginally hawkish turn on the
Committee, but we think that the Chair will make it quite clear
that neither interest rate rises nor any quantified timeline for
tapering bond purchases is under consideration."
The Fed chair is due to speak at a news conference after the
central bank's two-day policy meeting, which ends Wednesday.
Earlier this month, he said in a web symposium with
Princeton University that the U.S. economy is still far from the
Fed's inflation and employment goals, and it is too early to
discuss altering monthly bond purchases. The dollar index =USD ticked up 0.1% to 90.284 on
Wednesday in Europe, following a 0.2% decline the previous
The gauge has been consolidating since bouncing off a nearly
three-year low of 89.206 at the start of the month.
The British pound GBP= climbed to its highest since April
2018 at $1.3753 before trading slightly lower at $1.3724. GBP/
The Aussie dollar AUD= slipped 0.2% to 77.30 U.S. cents,
paring Tuesday's 0.5% rally.


The euro dipped 0.1% to $1.2146 EUR=EBS .
Analysts said reports on Tuesday the European Central Bank
was studying whether differences with the Fed's policy are
boosting the euro - part of a wider review of financing
conditions - would not have a material effect on the currency.
It's "probably one of those headlines where it's a buy on
the dip moment in euro/dollar here," said Jordan Rochester, FX
strategist at Nomura in a note to clients. He remained long the
euro/dollar spot rate, Rochester said, with a target of $1.25 by
the end of March.
ECB President Christine Lagarde has repeatedly said the
central bank is carefully monitoring the single currency's
exchange rate.
"We suspect they might find that higher inflation is more
credible in the US and that euro/dollar spot is closer related
to the global manufacturing sector (which is doing well), not
European services and maybe, that expectations are elevated in
terms of Europe's comeback," said Lars Sparresø Merklin, senior
analyst at Danske Bank.
"Either way, this adds to a growing number of countries who
appear uncomfortable with USD weakness."

World FX rates
Federal Open Market Committee Projections

FOREX-Dollar edges before Fed meeting, euro slips

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