US Dollar Little Changed Ahead of Fed Meeting Outcome

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FILE PHOTO: U.S. one dollar banknotes are seen in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration

NEW YORK ⸺ The dollar was little changed to slightly higher on Tuesday in quiet trading, with currencies generally lacking direction as market participants awaited the outcome of a Federal Reserve meeting for clues as to where U.S. interest rates are headed.

The greenback overall posted gains against the euro and commodity currencies such as the Australian and New Zealand dollars.

At the Fed’s two-day monetary policy meeting, policymakers are expected to forecast that the U.S. economy will grow in 2021 at its fastest rate in decades, with unemployment falling and inflation rising, but they are unlikely to change their monetary policy.

“The Fed will likely maintain its stance because there is clearly no sign of outrageous inflationary growth and equities seem fine after last week’s concern with yields,” said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

“U.S. producer prices, consumer prices, and even retail sales from this morning show that we have a long way to go before tightening any conditions,” he added.

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Tuesday’s data showed U.S. retail sales dropped by a seasonally adjusted 3.0% last month, due in part to harsh weather in February. Excluding automobiles, gasoline, building materials and food services, retail sales decreased 3.5% last month after surging by an upwardly revised 8.7% in January.

In afternoon trading, the dollar index was slightly up at 91.84. It has gained for a third straight session.

Investors will also pore over whatever the Fed has to say about the rise in yields, which have gained on bets that economic growth and inflation could prompt a faster-than-expected normalization of monetary policy.

“While it is hard to know to what extent the FOMC and Chair (Jerome) Powell will push back against the recent rise in bond yields tomorrow, our view is that investors are now overestimating the chance of monetary tightening in the U.S.,” said Bethany Beckett, assistant economist at Capital Economics.

U.S. Treasury yields were mixed overall, with the benchmark 10-year note up at 1.621% . 

The euro was down 0.2% at $1.1905.

It has held below $1.20 since March 5, hurt by expectations for a slower economic recovery in Europe compared with the UK and the United States, due to problems in rolling out the coronavirus vaccines.

Germany, France and Italy said on Monday they would suspend AstraZeneca COVID-19 shots after several countries reported possible serious side effects, but the World Health Organization said there was no proven link and people should not panic.

The Australian dollar – seen as a barometer for risk appetite – was down 0.1% at US$0.7747. The New Zealand dollar also slipped 0.1% at US$0.7193.

The dollar fell 0.1% against the yen to 108.97 ahead of the Bank of Japan’s two-day policy meeting, which ends on Friday. The central bank’s governor said on Tuesday it was important to keep long-term interest rates “stably low”.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis and Nick Zieminski; Reuters

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