Dollar Down, Investors Digest ECB’s Warning Against Early Tapering Expectations

Dollar Down, Investors Digest ECB’s Warning Against Early Tapering Expectations – The dollar was down on Friday morning in Asia, caged into a narrow trading range as investors await a U.S. Federal Reserve meeting in the following week.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies was down 0.17% to 91.170 by 1:08 M ET (5:08 AM GMT).

The USD/JPY pair inched down 0.06% to 107.90.

The AUD/USD pair was up 0.37% to 0.7735 and the NZD/USD pair edged up 0.14% to 0.7182. Although the Antipodean currencies steadied during the Asian session some investors pointed to the recent weakening in commodity prices as a downward risk for the riskier, commodities-tied pair.

The USD/CNY pair inched up 0.07% to 6.4958 and the GBP/USD pair edged up 0.19% to 1.3862.

The Fed will hand down its policy decision on Apr. 28, when it is widely expected to keep its current policy largely unchanged.

Although investors will be on the lookout for any comments about scaling back monetary easing in the future, Fed Chairman Jerome Powell is likely to repeat European Central Bank (ECB) President Christine Lagarde’s warning that expectations of tapering of bond purchases as the ECB handed down its policy decision on Thursday.

If that is Powell’s message when the Fed hands down its own policy decision in the following week, it will likely put downward pressure on Treasury yields and cap the greenback’s gains.

The euro, meanwhile, fell after Lagarde shut down expectations that ECB will start to consider tapering as the economic outlook improves in the continent. France targets re-opening schools on Monday and lifting domestic travel curbs, which started earlier in the month, on May 3.

Although the improving outlook and rising COVID-19 vaccination rates continue to boost investor sentiment, investors scaled back expectations for a withdrawal of monetary easing policies after Lagarde reiterated that the talk of phasing out emergency bond purchases is premature.

“Powell has to reiterate the continuation of easy monetary policy just like Lagarde… as a result, the dollar is likely to fall against the yen, but the larger trend for the dollar is still mixed. The dollar can still rise against commodity currencies if commodity prices start falling again,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.

On the data front, Germany will release April’s manufacturing and service Purchasing Managers Indexes (PMIs) later in the day. The U.S. will also release its April manufacturing and service PMIs later in the day alongside figures for new home sales in March.

Although positive data could contribute to investor sentiment, the dollar and the euro are unlikely to make big moves as investors continue to wait on the sidelines ahead of the Fed decision.

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