Risk of Fed surprise keeps dollar well bid
The dollar hovered near multi-week highs on Tuesday, drawing support from traders wary of a surprise from the U.S. Federal Reserve which is set to begin a two-day policy meeting.
Markets expect no immediate changes to monetary policy, but with positioning heavily loaded against the dollar, investors are leery of any shift in tone that could spark a rally.
The euro perched at $1.2120, just above a one-month low of $1.2093 it hit last week. The yen hit a seven-session low of 110.15 per dollar. The U.S. dollar index held near the top of its recent range at 90.512.
The Aussie slipped marginally to $0.7705 on Tuesday after minutes from the Reserve Bank of Australia’s last meeting showed the bank was prepared to keep buying bonds even though the economy has recovered its pre-pandemic output.
So far Fed officials, led by Chair Jerome Powell, have stressed that rising inflationary pressures are transitory and ultra-easy monetary settings will stay in place for some time to come, although recent economic data has raised concerns that price pressure could force an earlier stimulus withdrawal.
Nearly 60% of economists in a Reuters poll expect a tapering announcement in the next quarter.
In cryptocurrencies, bitcoin was able to steady above $40,000 on Tuesday and is approaching its 200-day moving average - finding support from the promise of fresh investment from major backer MicroStrategy and from Elon Musk.
Tesla boss Musk on Sunday flagged that the carmaker could resume transactions using the token if miners can use cleaner energy to process them.
Ether also got a small lift in sympathy with its bigger rival, and broke above its 20-day moving average to $2,593.40.
· China's yuan weakens as dollar pauses before Fed meeting
China's yuan eased to its weakest against the dollar in more than a week on Tuesday, as the greenback sat below a one-month high against major peers ahead of a closely watched Federal Reserve meeting.
The yuan's moves were limited following a long holiday weekend as traders adopted a wait-and-see approach, though
market players expect the Fed's discussion on how to taper its
$120 billion in monthly bond purchases to begin cautiously.
Spot yuan opened weaker 6.4050 per dollar and trimmed losses to 6.4045 at midday, 65 pips softer than Friday's late session close. The offshore yuan was slightly stronger at 6.4038 per dollar.
· Russia’s ruble backs away from 11-month highs as eyes turn to Biden-Putin summit
The ruble has been on a steady incline since mid-April, supported by rising oil prices and a hawkish Central Bank of Russia, but a geopolitical cloud is forming as President Vladimir Putin prepares to meet with U.S. President Joe Biden on Wednesday.
The currency notched its strongest level against the greenback since July 2020 last week, according to Reuters data. The dollar dipped to below 72 against the Russian currency to an intraday low of 71.5, as the price of oil notched a 26-month high and Russian inflation surged in May, raising interest rate expectations further. The greenback was trading at 71.97 against the ruble early on Tuesday morning. Meanwhile Russian bond yields rose last week even as U.S. yields retreated.
However, the threat of Western sanctions has consistently clouded the outlook. Biden and Putin will meet in Switzerland to discuss strategic nuclear stability and the deteriorating ties between the Kremlin and the West.
· Saudi inflation rate rises again in May, hits 5.7%
Saudi Arabia’s inflation rate rose for the second consecutive month, climbing to 5.7% in May from 5.3% in April, again reflecting a tripling of value-added tax to 15% last year, official data showed on Tuesday.
· Philippine peso falls most since April as virus curbs extended
The Philippine peso fell the most in more than two months on Tuesday after coronavirus curbs were prolonged in the capital Manila and nearby provinces until end-June and quarantine measures were tightened to battle rising infections.
The peso slid as much as 0.4% to a more than two-week
low and was on track for its worst day since April 7. Stocks in
Manila, which have rallied more than 4% so far this
month, gave up 0.2%.
Reference: Reuters, CNBC
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