You are here
US dollar falls to six-day low before Fed's meeting
THE US DOLLAR fell to a six-day low on Tuesday as investors unwound long bets on the currency, anticipating the Federal Reserve may slow the pace of interest rate hikes after this week's meeting.
A rout on Wall Street hastened by recent weak economic data globally has bolstered the view that the Fed's widely-expected rate hike on Wednesday could mark the end of three years of steady rate increases.
Some investors are starting to question whether the dollar's run as the best performing major currency will continue into 2019.
Investor confidence has deteriorated, leading to the gloomiest outlook for the world economy in a decade, a survey by Bank of America Merrill Lynch found.
The US dollar has replaced technology stocks as the most crowded trade for the first time since January, it said.
Risk-off sentiment on Tuesday lifted the Japanese yen and the Swiss franc but the dollar did not benefit from the flight to safety.
"US central bankers are experiencing strong headwinds for their rate hike plans . . . that hinders the dollar and poses the question whether it can reign supreme next year," said Thu Lan Nguyen, an FX strategist at Commerzbank in Germany.
With the prospect of a "dovish rate hike" keeping the dollar in check, the euro on Tuesday rose half a per cent to scale US$1.14. The single currency has recovered all of its losses from Monday when it was hit by weak eurozone data.
Still, the European Central Bank's assessment last week that the balance of risks was moving to the downside, combined with protests in France weighing on business, means that euro appreciation is still a few months away, according to Goldman Sachs analysts.
The dollar index was 0.4 per cent lower at 96.699, a six-day low.
Markets will scrutinise the Fed's two-day policy meeting, which starts on Tuesday, for its sense of how the US economy is holding up amid a US-China trade conflict and global financial market volatility.
Last week, the dollar enjoyed its best weekly performance since September, reaching an 18-month high.
Some analysts think dollar strength can return if the Fed remains relatively confident about next year's monetary tightening path.
"Personally, I think the Fed will continue to normalise policy next year and I don't think it will send the US economy into recession," said ACLS analyst Marshall Gittler. REUTERS