Dollar hovers near one-month high with market frozen before Fed test

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TOKYO — The dollar hovered below a

one-month high compared with major peers on Tuesday ahead of a

much-anticipated Federal Reserve meeting that could signal a

change in the outlook for U.S. monetary policy.

The U.S. currency has been buoyed as traders closed short

positions before the Fed’s two-day policy-setting confab, which

kicks off on Tuesday.

The dollar index, which measures the greenback

against a basket of six currencies, was flat early in Asia at

90.517. It has pushed briefly above 90.60 in each of the last

two sessions, and 90.63 would be the strongest level since May

14.

Traders will be watching carefully for clues on when

policymakers will start tapering dollar-depreciating stimulus.

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 after the post-COVID-19 economic reopening could

force an earlier stimulus withdrawal.

“While Powell will tread carefully, I expect that the Fed is

warming to a more open discussion about tapering, to be formally

announced in the September meeting,” Chris Weston, head of

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research at broker Pepperstone in Melbourne, wrote in a note to

clients.

“Any view that cements a formal announcement in September

should be modestly USD bullish, but the risks are symmetrical as

Powell will be keen to not hurt financial conditions,” he wrote.

Nearly 60% of economists in a Reuters poll expect a tapering

announcement in the next quarter, despite a patchy recovery in

the job market.

Currency markets settled in tight ranges with implied

volatility plumbing multi-month lows after last week’s strong

inflation readings and a dovish European Central Bank meeting

failed to dislodge currencies from recent trading levels.

The Deutsche Bank FX Volatility Index plunged to

5.6 on Friday, its lowest in nearly 16 months, and remained just

above that level this week.

The euro was little changed at $1.21185 on

Tuesday, near an almost one-month low at $1.20930 reached on

Friday.

The yen was at 110.075 per dollar, almost flat

from Monday, after a more than 0.3% slide in each of the past

two sessions.

In cryptocurrencies, bitcoin traded above $41,000

for the first time in more than two weeks on Monday, and was

last around $40,495 after rallying from below $35,000 on Sunday

after Tesla Inc boss Elon Musk tweeted that the

electric carmarker would resume allowing bitcoin transactions

when miners who verify transactions use more renewable energy.

Ether also got a small lift in sympathy with its

bigger rival, but remained well within recent ranges at

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$2,605.54 on Tuesday.

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Currency bid prices at 020 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.2118 $1.2121 -0.02% -0.82% +1.2123 +1.2114

Dollar/Yen 110.0700 110.0650 +0.01% +6.57% +110.0800 +110.0600

Euro/Yen

Dollar/Swiss 0.8995 0.8995 +0.02% +1.69% +0.8997 +0.8997

Sterling/Dollar 1.4112 1.4105 +0.05% +3.29% +1.4112 +1.4105

Dollar/Canadian 1.2139 1.2149 -0.04% -4.63% +1.2147 +1.2140

Aussie/Dollar 0.7712 0.7712 +0.01% +0.26% +0.7716 +0.7709

NZ 0.7148 0.7144 +0.02% -0.49% +0.7148 +0.7143

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Kevin Buckland)