US$ inches up, caution ahead of Fed statement

London

THE US dollar climbed against a basket of currencies on Wednesday, recouping some of the previous day's sharp losses, although gains were muted before a statement from the Federal Reserve after its policy meeting.

Interest-rate sensitive two-year Treasury yields held above 0.50 percent, lending support to the dollar.

The dollar fell on Tuesday after weaker-than-forecast corporate earnings reports and durable goods data made some traders and investors nervous that the Fed could turn more cautious in its guidance on future rate rises, given that plunging oil prices have cooled inflationary pressures.

That view, though, was partly offset by strong consumer confidence and home sales data. The Fed is still expected to signal a "patient" approach to raising interest rates after its first two-day policy meeting of the year concludes on Wednesday, but the dollar could be vulnerable if the Fed shows any unease with the dollar's strength, traders said.

The dollar index was up 0.1 per cent at 94.137, having posted its biggest fall since early October on Tuesday. It was still below a 11-year high of 95.481 hit on Friday, but got a slight boost from a surprise monetary easing by Singapore, which lifted the US dollar against the Singapore dollar and other Asian currencies.

Against the yen, the dollar was flat at 117.80 yen, well below last week's high of 118.80. The euro traded 0.2 per cent lower at US$1.1355 as a surge in Greek bond yields weighed on sentiment towards the single currency, traders said.

The Singapore dollar fell to its weakest in nearly 4½ years, driving losses among emerging Asian currencies, after the city-state unexpectedly eased monetary policy to tackle deflationary pressures.

Thailand's baht recovered most of its earlier losses after the central bank left its policy interest rate unchanged. The move by Singapore's central bank had fuelled speculation that it, too, could ease policy.

Malaysia's ringgit also fell, reflecting perceived risks that the central bank could surprise with interest rate cuts later in the day.

The South Korean won slid as offshore funds sold the currency amid expectations that the Bank of Korea may cut interest rates soon.

The baht earlier has lost as much as 0.3 per cent to 32.64 per dollar, its weakest since Jan 21. REUTERS