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Concern about possible measures or even a simple statement of
intent by the Fed to hold down the yields of U.S. government
bonds has kept the U.S. currency under pressure.
Against a basket of international currencies <=USD>, the dollar
fell about 0.5% to 95.97, a level not seen since March 12. The
euro <EUR=D3>, the pound <GBP=D3> and the Swiss franc <CHF=D3>
all reached three-month highs against the dollar.
The euro rose as high as $1.1388, sterling reached $1.2786 and
the franc $0.9449.
Dollar/yen fell to nearly a two-week low of 107.26 <JPY=EBS>.
Some investors believe the Fed, which is not expected to change
its interest rate policy, may decide either today or at a later
date to adopt yield-curve control measures to guide 10-year
Treasury yields lower.
Earlier this month, hopes that the U.S. economy would recover
faster than expected had pushed yields of U.S. government bonds
to their highest level in nearly three months and strengthened
the dollar.
"We do not expect yield curve control to be adopted at tonight’s
meeting, but we would not be surprised if markets this evening
are left with a view that it is a policy under most serious
consideration as a strong, powerful form of forward guidance and
is likely to be introduced later in the year", MUFG Bank
analysts wrote to their clients.
In the meantime, the uncertainty about the outcome of the Fed
meeting is likely to keep the dollar under pressure.
"Anyone who wants to know what that means for the U.S. dollar
long term simply has to take a look at the JPY (yen) and how it
acts as the ultimate safe haven in times of crisis - more so
than even the dollar", Commerzbank analyst Thu Lan Nguyen
commented.
U.S. central bankers on Wednesday will also publish their first
economic projections since the coronavirus pandemic plunged the
country into recession.
Estimates are expected to signal a collapse in output this year
and near-zero interest rates for the next few years.
The Australian and New Zealand dollars extended their recent
rally against the U.S. dollar as economic activity in both
countries resumed following the lifting of coronavirus
restrictions.
The Australian dollar <AUD=D3> rose 0.69% to $0.7008, just shy
of an 11-month high. The New Zealand dollar <NZD=D3> also rose
0.7% towards its highest since late January.
(Reporting by Julien Ponthus; editing by Saikat Chatterjee,
William Maclean, Larry King)
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