Cautious optimism supports dollar

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    Cautious. An employee counts US dollar bills at a money exchange office. The ECB could set the tone for upcoming rate-setting decisions by the US Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite. (Reuters Photo)
    Cautious. An employee counts US dollar bills at a money exchange office. The ECB could set the tone for upcoming rate-setting decisions by the US Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite. (Reuters Photo)

    SINGAPORE- Fragile investor confidence supported the dollar and weakened the yen on Wednesday but currency markets kept to tight ranges ahead of series of major central bank meetings over the next week.

    Investor focus for now is centered on the European Central Bank’s meeting on Thursday, which is expected to push interest rates even further into negative territory.

    The ECB could set the tone for upcoming rate-setting decisions by the US Federal Reserve and the Bank of Japan next week, and for the broader global risk appetite.

    For now, a cautious risk-on mood has prevailed after political crises that had hobbled markets, from Britain to Hong Kong, abated, taking the shine off safe-haven assets.

    Bonds slid overnight and the yen hit 107.65 per dollar, its lowest since Aug. 1.

    Overhanging the relief buying, however, are signs of a slowdown in global demand, which have offset recent positive developments in US-China trade negotiations.

    The euro, which has shed 3 percent since June, was flat at $1.1047. The dollar was flat against the Australian dollar at $0.6860 and steady on the yen and the New Zealand dollar.

    “Expect a quiet day of trading, with some support of risk, as a broader cyclical rotation continues,” Australia and New Zealand Banking Group analysts said in a note.

    “Speculation over whether the ECB will enact a new QE program on Thursday continues to ebb and flow.”

    ECB policymakers are leaning toward a package that includes a rate cut, a pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said last week.

    On the other hand, concerns have been building that global central banks are reaching the limits of their stimulus options, especially those with negative interest rates and sub-zero long-term sovereign bond yields. – Reuters