Fed’s tapering of assets keeps the dollar on peak

Fed’s tapering of assets keeps the dollar on peak

As the traders are waiting for the Fed’s announcement on tapering of assets, the dollar value remains near recent peak high versus Euro and yen. The U.S. Federal Reserve is likely to announce its policy for existing pandemic-era slowdowns.

The Fed’s policy statement will likely be the start of tapering of the $120 billion-a-month asset purchase program. The announcement is scheduled for 2 p.m. Eastern time (1800 GMT). This event is followed by a news conference with Powell.

Mark McCormick, global head of FX strategy at TD Securities, has stated that the market will fluctuate according to any announcements on tapering of assets and inflation surges.

The dollar index had a 0.027% increase to 94.135. This rate is close to the 2021 peak of 94.563 that was hit last month.

Christine Lagarde, the President of the European Central Bank has said that there is a low chance for an increase in interest rate in 2022 since the inflation remains too low. With a higher interest rate, the government bonds yield would decelerate further.

The dollar was down marginally by $1.15715 against the euro. This level for the euro is close to the year low of $1.1522 that was hit in October.

The dollar/yen pair is at 113.955. This rate is close to the 4-year high.

Outlook on Inflation

The Reserve Bank of Australia is holding a meeting on Tuesday after the Fed announced policy. The ING strategists have stated that the dollar bearish movements of today are a signal for a wide tapering.  The concerns over the bond market responses are likely not going to impact the Fed’s decision for the scales of tapering. They continued by saying that the Fed must acknowledge that rising inflation can’t reflect transitory properly. Many dovish central banks are using the same method worldwide. Fed can give the dollar and rates a boost in value by keeping this factor in mind.

On Tuesday, the Aussie declined 1.2% in value and is at the $0.74275 level. On Wednesday also, the Aussie had a 0.01% decline.

The Aussie mainly fell due to the banks pushing back on aggressive pricing for 2022 hikes.

The New Zealand dollar had a 1% decline on Tuesday, however on Wednesday, it found support from strong data on labor and rose by 0.37% to $0.7134.

The sterling has recovered from a two-week low and had a 0.22% increase in value to $1.3642.