US dollar slips, lacking direction before Fed meeting

London

THE US dollar slipped slightly on Tuesday, but currency markets generally lacked direction as market participants waited for the US Federal Reserve meeting to set the tone for markets.

At the Fed's two-day monetary policy meeting that ends on Wednesday, policymakers are expected to forecast that the US economy will grow in 2021 at its fastest rate in decades, with unemployment falling and inflation rising, but are not considered likely to change their monetary policy.

The dollar index held steady overnight, then rose as European markets opened, before slipping to 91.807 at 1237 GMT, down by less than 0.1 per cent.

"Markets are in this flux period where they're gripping on to marginal bits of information, but there's nothing to define a new broad dollar trend until we get some more colour from the Federal Reserve," said Simon Harvey, FX analyst at Monex Europe.

"How the Fed delivers their message is going to be telling for the dollar," he said.

"You're going to start getting the first glimpses of how they interpret an average inflation target."

Investors will also pore over whatever the Fed has to say about the rise in yields, which have gained on bets that economic growth and inflation could prompt a faster-than-expected normalisation of monetary policy.

"Anything less than a strong message of the Fed being very committed to maintaining favourable financial market conditions will likely see USD advance further," wrote MUFG FX strategists in a weekly note on Friday.

US Treasury yields slipped slightly, below their recent peaks. US retail sales fell more than expected in February but a rebound is likely as the government disburses another round of pandemic relief money to mostly lower- and middle-income households.

The euro was at US$1.1933, flat on the day.

It has held below US$1.20 since March 5, hurt by expectations for a slower economic recovery in Europe compared with the United Kingdom and the United States due to problems rolling out coronavirus vaccines.

Germany, France and Italy said on Monday that they would suspend AstraZeneca Covid-19 shots after several countries reported possible serious side effects, but the World Health Organization said there was no proven link and people should not panic. REUTERS