FOREX-Dollar pins hopes on Fed, Biden for ending month-long decline

* Dollar eyes Fed to see if it can end its month-old drop
* Rising inflation expectations push up U.S. yields again
* Australian dollar falls after soft CPI
* Yen at multi-year low vs euro, franc;BOJ nowhere near
tapering
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, April 28 (Reuters) - The dollar is set to take its
cues from the U.S. Federal Reserve's policy statement and a
speech by President Joe Biden on Wednesday, as it seeks to
extend a recovery from an eight-week low touched earlier in the
week against a basket of currencies.
The dollar index stood at 90.968 =USD , bouncing from
Monday's low of 90.679, its lowest level since March 3, though
investors are not convinced if its downtrend since late March
has ended.
The greenback's decline stemmed largely from receding bets
that the Federal Reserve could start laying the ground work for
future policy tightening soon as the U.S. economy rapidly
recovers.
On Wednesday, the U.S. central bank is widely expected to
maintain its policy settings and Fed Chairman Jerome Powell is
seen as likely to repeat his dovish message.
But some analysts say signs of rising inflation expectations
could nudge the Fed to abandon its rhetoric that a policy
tightening is still a long way off.
Investors' inflation expectations, measured by break-even
inflation (BEI) rate calculated from U.S. inflation-linked bonds
US10YTIP=TWEB , rose above 2.40% on Tuesday, the highest level
since 2013.
"In a way, the rise in the BEI above 2% is what the Fed has
been wishing for. Still, if it goes too far it could raise alarm
at the Fed. The Fed will probably not be able to overlook a rise
in BEI above 2.5%," said Makoto Noji, chief FX strategist at
SMBC Nikko Securities.
The Federal Reserve said last year it aims to bring average
inflation to around 2% and to allow it to overshoot above 2%,
rather than trying to cap it around 2%.
The euro slipped 0.1% to $1.2080 EUR= , off Monday's
two-month high of $1.2117.
The dollar stood at 108.85 yen JPY= , having jumped 0.59%
overnight and extending its recovery from a seven-week low of
107.48 touched last week, in tandem with rises in U.S. bond
yields.
The yen was on the back foot also as Japan's economic
recovery is being hampered by recent surges in COVID-19 cases
and after the Bank of Japan acknowledged that inflation will
fail to reach its key 2% target through early 2023.
"When you look around, the Bank of Canada already started
tapering. The Bank of England could come next. The ECB might
drop a hint of tapering in June. And we will hear from the Fed
today. Compared with all that, there's a sense that the BOJ is
quite behind," said Jun Arachi, forex strategist at Rakuten
Securities.
The Japanese currency slipped even against low-yielding
European currencies, hitting a 2-1/2-year low versus the euro,
at 131.57 per euro EURJPY= and a five-year low on the Swiss
franc CHFJPY= , at 119.20 per franc.
Besides the Fed, investors are looking to President Biden's
first address to a joint session of Congress, also scheduled
later on Wednesday. Biden is expected to roll out a plan to raise taxes on the
wealthiest Americans, including the largest-ever increase in
levies on investment gains, to fund about $1 trillion in
childcare. News reports about his tax-hike plan dented markets' risk
appetite only briefly on Friday but analysts think there could
be a bigger reaction if the plan becomes more concrete.
"In addition to tax policies that have resurfaced as a
market focus, his stance on diplomacy should attract some
attention given recent tensions with China and Russia," said
Shinichiro Kadota, senior strategist at Barclays.
Elsewhere, the Australian dollar dropped 0.35% to $0.7739
AUD=D4 after the country's consumer price came in weaker than
expected. In crypto-assets, bitcoin extended its rebound from a trough
hit on Sunday to $55,221 BTC=BTSP .
Ether ETH=BTSP hit a record high of $2,711.6 in Asia on
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World FX rates https://tmsnrt.rs/2RBWI5E
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