Investors stayed on the sidelines ahead of the Fed meeting and caution took hold as policymakers might announce yield curve control measures.
Speculation that the Federal Reserve could take steps to curb the recent rise in bond yields pushed the dollar down. Earlier this month hopes that the U.S. economy could recover faster than expected had propped up yields of U.S. government bonds to their highest level in nearly three months and pushed up the dollar.
So, some investors believe that the Fed may adopt yield curve control measures to guide 10-year Treasury yields lower. Fed’s meeting could shed further light on the central bank’s view of the economy as it emerges from lockdowns.
U.S. central bankers will also publish their first economic projections since the coronavirus pandemic plunged the country into recession.
No action is expected from the Fed, but any hint of taking the foot off the pedal could hurt risk sentiment. Focus is on its economic outlook.
Investors are closely watching how the Fed takes last week’s surprisingly positive jobs figures. They hope the central bank does not ignore the woeful data that markets have mostly shrugged off for weeks.
The Fed’s policy statement is due at 1800 GMT.
Also, economic data is expected to show CPI was unchanged in May after dropping about 0.8% in the prior month.
Further, the Organisation for Economic Cooperation and Development said that the global economy will suffer the biggest peace-time downturn in a century.
Updating its outlook, the OECD forecast the global economy would contract 6.0% this year. It will then bounce back from the coronavirus-inflicted recession with 5.2% growth in 2021. An equally possible scenario of a second wave of contagion this year could see the global economy contract 7.6%.
START TRADINGForex – Caution took hold ahead of Fed’s outlook
The Australian dollar last sat at $0.6995, about 0.7% below an 11-month high of $0.7043 hit a day earlier.
The New Zealand dollar rose 0.5% towards its highest since late January.
The yen hit a week-high at 107.53 per dollar, reflecting caution.
The euro rose 0.15% to $1.1354, just shy of 1.1384, its highest against the greenback since March 10.
Sterling rose against the weaker dollar and stayed flat versus the euro on Wednesday. Brexit uncertainty, the prospect of negative interest rates and Britain’s large coronavirus death toll still weighed on the pound.
The British currency was last changing hands at $1.2774, up 0.4% on the day against the greenback. But was flat versus the euro at 89.02 pence.
Oil prices were on the back foot on renewed concerns about oversupply and underlying economic weakness.
Brent crude was last down 1% for the session at $40.67 per barrel. U.S crude was 1.6% weaker at $38.30 a barrel.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money
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