Dollar trades above multi-week lows before Fed meeting

London

THE US 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 US dollar.

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 March 3 overnight at 90.679.

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

The yen showed a muted response after the Bank of Japan kept its monetary policy on hold as widely expected.

"The reflation trade is back on," Gavin Friend, a strategist at National Australia Bank, said on a client podcast. "Currencies outside of the (US) dollar should be doing quite well anyway in that environment."

The US dollar has fallen nearly 3 per cent since late March as US Treasury yields traded in narrow ranges after retreating from a 14-month high of 1.7760 per cent, slashing the currency's yield appeal.

The benchmark 10-year Treasury yield was around 1.58 per cent on Tuesday, tracking sideways since sliding to a one-month low of 1.528 per cent in the middle of this month.

The euro slipped 0.1 per cent to US$1.2078, but remained close to the two-month high of US$1.2117 reached on Monday.

The commodity-linked Australian dollar, a barometer of risk appetite, eased 0.3 per cent to US$0.7778, after a 0.7 per cent rally overnight that took it just shy of a five-week peak.

The offshore Chinese yuan retreated 0.1 per cent after rising to a seven-week top of 6.4710 per US dollar on Monday. REUTERS