Investing.com – The dollar edged higher in early European trading Tuesday, but remained near multi-week lows ahead of the start of the Federal Reserve’s two-day policy decision meeting.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was 0.2% higher at 90.918, after dipping to the lowest since March 3 overnight at 90.679.
EUR/USD traded down 0.1% at 1.2071, but remained close to the two-month high of 1.2117 reached Monday, GBP/USD was largely unchanged at 1.3891, while the risk-sensitive AUD/USD fell 0.1% to 0.7793, after a 0.7% rally overnight that took it just shy of a five-week peak.
USD/JPY rose 0.1% to 108.20, continuing its rise from Friday’s seven-week low of 107.48, after the Bank of Japan held policy steady and took a more positive view on growth while cutting inflation forecasts.
Attention now turns to the Federal Reserve’s two-day policy-setting meeting, concluding on Wednesday, even if no changes to monetary policy is widely expected.
The market will still pay close attention to comments from Fed Chairman Jerome Powell, who is likely to face questions over whether improving conditions warrant a withdrawal of monetary easing.
There seems to be a real conviction that the global economy is on a recovery path, even with the Covid situation in India causing anxiety, and this is weighing on the dollar.
“Supporting this narrative should be this week’s combination of US events in the form of a) strong 1Q21 US GDP on Thursday and b) Wednesday’s FOMC showing a Fed continuing to let the economy run hot and only reining in accommodation once the recovery has delivered,” said analysts at ING, in a note.
June looks like being a much more significant FOMC meeting, as there will have been a number of months of likely strong economic data for the central bank to digest, and “the seven weeks between the April and June FOMC meetings is a long time to be sitting on the sidelines in defensive dollar positions when more attractive alternatives are available elsewhere,” ING added.
Also of interest Tuesday will be the auction of $62-billion of seven-year U.S. Treasurys later in the session. A seven-year debt auction in February saw very weak demand, which sparked a dramatic rise in yields, helping the dollar push higher.
However, the dollar has fallen nearly 3% since late March as U.S. Treasury yields traded in narrow ranges after retreating from a 14-month high of 1.776%, in the benchmark 10-year yield, slashing the currency’s appeal.
The 10-year yield was around 1.58% on Tuesday, in quiet trade since sliding to a one-month low of 1.528% in the middle of this month, while the seven-year yield edged up to 1.27%.
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