Amid a surge in coronavirus cases fueling demand for riskier currencies, financial markets expect Federal Reserve to hold fire on fresh steps.
This month’s spike in infections having forced some states to make a U-turn on reopening their economies. Rising infection rates are leading some analysts to predict strong forward guidance from the Fed on further policy actions. Four U.S. states in the south and west reported one-day records for coronavirus deaths on Tuesday and nationwide cases stayed high.
United States struggles to contain a spike in coronavirus cases, dashing hopes for a quick economic recovery.
Dollar bears bet FED could hint of other ways to loosen policy further down the road.
Investors will also be watching for any indications the Fed will increase its purchases of longer-dated debt. Also, it is of great interest whether Fed will implement yield caps or target higher inflation than previously indicated, building on recent massive stimulus measures.
An eroding perception that U.S. economic growth would be stronger than the rest of the developed world fuels dollar’s weakness. Also, uncertainties over an additional fiscal package to support the economy weigh on the dollar.
Some Republicans in the U.S. Senate have pushed back against their own party’s $1 trillion coronavirus relief proposal. At the same time Democrats have called for larger support, including a full extension of an enhanced coronavirus unemployment benefit.
Further, U.S. consumer confidence fell more than expected in July, losing steam following two months of recovery. This is just another sign that rising COVID-19 infections are dampening consumption.
Investors will keep a close watch on how the FED addresses economic risks at the end of the policy meeting. The Fed’s statement is expected at 2 p.m. ET, which will be followed by Chair Jerome Powell’s press conference.START TRADING
Forex – Federal Reserve to adopt a dovish tone
Hopes for a dovish tone from the Federal Reserve overshadowed concerns about next steps for the government’s coronavirus support plan.
The dollar index fell 0.4% to 93.41, its lowest level since June 2018. It has weakened more than 3% since the last Federal Reserve meeting.
The greenback traded at 104.82 yen, a four-month low and down 0.25% on the day.
The euro traded at $1.1762, up 0.3%, although it has stepped back from Monday’s 22-month high of $1.17815. For investors, the common currency’s strength has been vindicated by a recent fiscal stimulus deal reached by European Union leaders last week. Charts and derivatives expect the single currency to strengthen to $1.20 levels in the short term.
The weakening dollar pushed the Australian dollar higher with the currency trading at $0.7185. The Aussie hit a 15-month peak after data showed Australia’s consumer prices fell by a record in the second quarter.
The pound benefited as the dollar weakened on Wednesday, rising 0.3%, but was flat against the euro.
The sterling pound rose to a five-month high of $1.2977, close to its pre-coronavirus levels. It then settled at $1.2965, up 0.3% on the day. It was up 0.1% versus the euro at 90.58 pence.
Gold, which rallied to an all-time high of $1,980.57 on Tuesday, slipped to $1956.3200.
Oil prices rose after a surprise drop in U.S. crude inventories. However, gains were capped by demand concerns after record increases in COVID-19 infections in some U.S. states.
Brent crude futures rose 38 cents, or 0.9%, to $43.60 a barrel by 1345 GMT. U.S. West Texas Intermediate crude futures gained 26 cents, or 0.6%, to $41.30.
PLEASE NOTE The information above is not investment advice.Sources: Reuters, Investing, CNN money