TOKYO- The dollar is set to take its cues from the US Federal Reserve’s policy statement and a speech by President Joe Biden on Wednesday, as it seeks to extend a recovery from an eight-week low touched earlier in the week against a basket of currencies.
The dollar index stood at 90.968, bouncing from Monday’s low of 90.679, its lowest level since March 3, though investors are not convinced if its downtrend since late March has ended.
The greenback’s decline stemmed largely from receding bets that the Federal Reserve could start laying the ground work for future policy tightening soon as the US economy rapidly recovers.
On Wednesday, the US central bank is widely expected to maintain its policy settings and Fed Chairman Jerome Powell is seen as likely to repeat his dovish message.
But some analysts say signs of rising inflation expectations could nudge the Fed to abandon its rhetoric that a policy tightening is still a long way off.
Investors’ inflation expectations, measured by break-even inflation (BEI) rate calculated from US inflation-linked bonds, rose above 2.40 percent on Tuesday, the highest level since 2013.
“In a way, the rise in the BEI above 2 percent is what the Fed has been wishing for. Still, if it goes too far it could raise alarm at the Fed. The Fed will probably not be able to overlook a rise in BEI above 2.5 percent,” said Makoto Noji, chief FX strategist at SMBC Nikko Securities.– Reuters
