US dollar edges up in thin trading, investors cautious on BOJ, Fed

[NEW YORK] The US dollar edged up against a basket of major currencies on Tuesday in light trading as investors made limited moves ahead of the conclusion of policy meetings at the Bank of Japan and US Federal Reserve.

Investors see little chance the Fed will raise US short-term interest rates and expectations are also low that the BOJ will be able to weaken the yen meaningfully when both banks announce policy prescriptions on Wednesday. However, traders remained cautious on the outcome of the meetings. "To a large extent I think the market is just paring back its expectations," said Richard Cochinos, head of European G10 FX strategy at Citigroup in London.

"A week and a half ago consensus was US dollar/yen higher on BOJ inaction. Now we're seeing a flattening of the risk profile as we go into the central bank meetings and traders are not trying to be too aggressive on one side or the other."

The US dollar index rose 0.15 per cent to 95.995, hovering just below the 96.108 mark touched on Friday that was the highest since Sept 1. The US dollar has fallen against the six major currencies that make up its basket in three of the past four sessions, but had its largest one-day percentage gain since late July on Friday.

The US dollar got its biggest boost on Tuesday from selling of the British pound, which was last down 0.4 per cent to US$1.2975 after earlier hitting its lowest against the greenback since Aug 16.

The head of Germany's Bundesbank warned on Monday that banks based in Britain could lose "passporting" access to EU markets after Brexit, adding to worries about the political and economic risks from Britain's pending exit from the European Union.

The yen rose 0.1 per cent against the US dollar to trade at 101.81 yen, having earlier touched a one-week high at 101.55 yen. The Japanese currency has risen almost 20 per cent versus the US dollar over the past 12 months despite the Japanese central bank's best efforts to weaken it.

"The BOJ has been disappointing expectations for more stimulus at the margin for the last few meetings," said David Waddell, chief executive and chief investment officer at Waddell & Associates, Inc in Memphis.

"So the guess is that they will continue on the path they've been on, which is somewhat disappointing relative to stimulus."

REUTERS