U.S. dollar managed to climb up on Tuesday. Why’s that?

The U.S. dollar rebounded from a two-year low on Tuesday. Selling pressure faded ahead of a Fed meeting. Meanwhile, political wrangling over the next U.S. fiscal rescue package neared a conclusion.

The greenback has been lowering since May, and it collapsed during recent days due to doubts about the U.S. coronavirus recovery and crumbling yields.

However, the greenback found support during today’s session while other majors fell from high peaks. The New Zealand dollar reached an eight-month peak of $0.6702 and then fell back to $0.6656, while the sterling lowered from a four-month high to sit at $1.2850.

Meanwhile, the Japanese yen tumbled down by 0.3%, stopping just below its strongest point since mid-March at 105.65. The euro traded down by 0.2% at $1.1725. The Australian dollar also gave up early gains, falling by 0.2 to $0.7133.

What do the analysts expect?

Several analysts think that the reasons for the greenback’s broad decline, especially falling real yields, remain intact. However, the pace of the drop probably warranted a pause. Especially with a Fed meeting and a U.S. spending package in the offing.

Moh Siong Sim, the currency analyst at the Bank of Singapore, stated that perhaps it is the case that the forex market running ahead of itself. The Fed meeting will begin later on Tuesday, and there is also Friday’s deadline for the U.S. Congress to extend unemployment benefits. Both events are unpredictable enough to cause some nerves for bets against the dollar.

The greenback edged up from a two-year low of 93.492 against a basket of currencies to hit 93.918. Despite that, it is still down by 3.6% in July and will need a stronger boost to avoid posting its worst month in almost a decade.

Analysts don’t expect any policy change at the Fed meeting on Wednesday. Steve Englander, the head of global G10 FX research at Standard Chartered in New York, noted that the Fed announcement may be a damp squib, or even lead to some modest fixed income selling to take profit.