Dollar dips as markets increase bets on more Fed easing

The US dollar fell across the board on Wednesday as expectations grew that the US central bank may hint at more policy action, while the Chinese yuan vaulted to its highest level since May 2019, reports Reuters.

Markets are keen to see the Fed’s economic projections, and particularly whether it spells out where it sees inflation headed and what exactly that means for interest rates.

“The Fed may follow up by announcing some new easing steps in accordance with its new regime, though the general market consensus seems to be that it will adopt a wait and watch approach,” said Lee Hardman, a strategist at MUFG in London.

The US central bank on August 27 made a landmark shift in its approach to monetary policy and now aims for 2.0 per cent  inflation on average, meaning periods of low price increases could be followed by inflation rising moderately above 2.0 per cent.

The change suggests the US central bank’s key overnight interest rate, already near zero, will stay there for potentially years to come as policymakers woo higher inflation.

The dollar index fell 0.3 per cent at 92.836.

Given the scale of the policy change involved, investors tend to stay on their toes prior to any Fed announcement.

“The dollar got sold on last 3 FOMC (Federal Open Market Committee) days so we continue with that pattern today”, noted Kenneth Broux, a strategist at Societe Generale.

Trading could, however, easily and quickly shift soon after the statement, Commerzbank foreign exchange analyst Antje Praefcke warned.

In the meantime, most currencies made steady gains against the greenback.