Dollar trades above multi-week lows before Fed meeting

LONDON (Reuters): The dollar hovered above multi-week lows versus major peers on Tuesday, weighed by subdued Treasury yields ahead of the Federal Reserve’s policy decision this week, while the yen hardly budged after the Bank of Japan kept its policy on hold.

The safe-haven greenback was largely out of favour after world stocks started the week hitting a record high, although a slight pullback in world stock markets on Tuesday helped keep it above the recent lows.

Trading in currencies was largely subdued, ahead of this week’s Federal Reserve two-day meeting ending on Wednesday, where no change to policy is expected. However, the market will pay close attention to comments from Fed Chairman Jerome Powell, who is likely to face questions over whether improving conditions warrant a withdrawal of monetary easing. Most analysts, though, expect him to say such talk is premature, which could put downward pressure on Treasury yields and the dollar.

“By keeping nominal and real US Treasury yields subdued the Fed is taking away the edge that the dollar would otherwise have thanks to the superior performance of the US economy,” said Valentin Marinov, head of G10 FX research at Credit Agricole.

“This is also allowing investors to focus on dollar-negatives like President Biden’s tax proposals and the US external imbalances and thus levelling the playing field between the dollar and other currencies.” The dollar index, which tracks the US currency against six peers, was flat at 90.889 in the London morning session, after dipping to the lowest since 3 March overnight at 90.679.

The dollar added 0.2% to 108.34 yen, another haven currency, continuing its rise from the seven-week low of 107.48 reached Friday.