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Greenback weakens ahead of FOMC decision

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Greenback weakens ahead of FOMC decision

The US dollar declined 0.2 percent against a basket of its major rivals as the first day of the Federal Open Market Committee policy meetings were under way.

The US dollar was broadly weaker against most of its competitors as investors weigh the likelihood of a Federal Reserve bond taper. Policymakers are meeting to decide on the direction of the central bank’s monetary easing program, which is injecting more than $85 billion into the economy each month.

The North American pair declined almost 0.3 percent to 1.0291 after treading water in the Asian session. On Monday USDCAD hit a five-week low before reclaiming the 1.03 level. The pair traded within a range of 1.0278-1.0335 leading up to and including the New York session. Over the past five days the pair has declined half a percent.

Elsewhere, the greenback fell as much as 0.2 percent against the euro, sending EURUSD to a high of 1.3369. The pair later consolidated below 1.3360. The euro was supported by growing optimism in economic development in Germany and the broader euro area. Optimism reached a three-year high in September, according to the monthly ZEW Survey. Germany’s Economic Sentiment Index advanced more than 7 points to 49.6. Eurozone sentiment advanced more than 14 points to 58.6.

Elsewhere in Europe, the British pound managed to tread water against the greenback, settling at 1.5910 after the UK posted slower inflation growth over the previous month.

In the US, consumer inflation grew at a slower rate than expected, with the monthly Consumer Price Index showing a gain of 0.1 percent in August. On an annualized basis, CPI rose 1.5 percent for the year ending in August, versus expectations for 1.6 percent.

Expectations about the pace and timing of a Fed bond taper have shifted over the past few weeks, at least among some market participants. Federal Reserve Chairman Ben Bernanke will announce the central bank’s decision on Wednesday after the FOMC releases its two-year projection for inflation and economic growth. The Fed’s benchmark lending rate is not expected to change from its record low of 0.25 percent.

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