The U.S. dollar and the Japanese yen found support on Wednesday as traders shifted positions ahead of a U.S. Federal Reserve policy decision. The Chinese yuan also held gains thanks to the positive outlook for the world’s second-largest economy.
The Fed concludes its first meeting later in the day since adopting a more accommodative approach to inflation. Rodrigo Catril, a senior currency analyst at National Australia Bank in Sydney, stated that there’s a feeling in the market that the agency may try to act on its dovish tilt.
He also added that there’s a risk there that the Fed doesn’t do much more than what it’s done already. While the Yen buying reflects a belief that the bank may act on that stance, the further stimulus will weaken the U.S. dollar.
The Japanese currency last stood at a two-week high of 105.26 per dollar. The dollar also crept higher against other majors, after recovering from a Tuesday dip. Still, its moves in the morning trade were pretty small.
How did other currencies fare?
The Australian dollar tumbled down by 0.1% to $0.7294, while the New Zealand dollar lowered slightly at $0.6708. The euro also declined to $1.1837.
The Fed decision is due later today, and a news conference from Chairman Jerome Powell will follow it half an hour later.
Besides policy, a major area of focus will be on the Fed’s economic projections. Standard Chartered’s head of FX research Steve Englander said that the three to 3.5-year projection horizon would allow Fed members to indicate how big an overshoot they think will be required to get to the 2% inflation target.
The British pound climbed up from last week’s lows due to stronger-than-expected jobs figures and opposition to a plan to breach the Brexit treaty. It last stood at $1.2877 and 91.87 pence per euro.
The Chinese yuan also maintained big gains won on Tuesday. Better-than-expected economic data reinforced traders’ perception that the country is leading the global recovery from the pandemic. The yuan traded at 6.7835 per dollar after climbing as high as 6.7663 on Tuesday.
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