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 US monetary policy.
The US 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 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.
