Dollar falls as traders await possible move on Fed bond purchases

Ivan Schwartz
September 21, 2017

Gains could be limited, however, if stock prices also rally sharply higher.

WALL STREET: U.S. stock markets finished with a slight gain on Tuesday.

Meanwhile while the main focus for USD investors this week with undoubtedly be the Fed rate decision on Wednesday the US Dollar could still be impacted by the release of US export prices on Tuesday, with the "Greenback" possibly slipping if prices fell as expected.

The central bank is also expected to announce plans to begin unwinding its $4.2 trillion portfolio of Treasuries and mortgage-backed securities, almost a decade after the global financial crisis. Forecasters expect the Fed to leave interest rates unchanged and stick to plans to raise rates in December.

The dollar was on tenterhooks, trading sideways against major rivals on Wednesday as investors awaited the outcome of the Federal Reserve's meeting at which it was expected to announce plans to trim its $4.2 trillion in bond holdings.

Financial stocks benefited from a rising U.S. Treasury yields, with the yield on benchmark 10-year notes at 2.222 percent.

That marked a rise of 22 basis points from 10-month lows set on September 8, when US bond yields fell on risk aversion, partly stemming from concerns about U.S.

The Australian dollar climbed to $0.8012 from $0.7952.

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Such Fed meetings - complete with new economic forecasts and a press conference by the Fed Chair, take place only once a quarter - hence the market's heightened anticipation.

Political uncertainty may have a part to play in the BOJ's thinking. That will gradually increase long-term borrowing rates.

Against the USA dollar and the euro, the kiwi dropped to 0.7303 and 1.6439 from an early 2-day highs of 0.7342 and 1.6349, respectively.

The Dow closed at a record high on Friday, and so did the S&P 500.

"You just had that little momentum spurt after it went through 2,500 but it is kind of running out of steam and is going to bide its time until Wednesday, when they listen to (Fed chief) Janet" (Yellen), said Ken Polcari, director of the NYSE floor division at O'Neil Securities in NY.

Shares of wireless carriers T-Mobile rose 4.4 percent and Sprint 8.6 percent, following a report that the companies were in active merger talks.

But economists and Fed officials say the storms will not affect the underlying trend in growth, which has been steady at around two percent in recent years, and activity should rebound later in the year due to reconstruction efforts. "I think that's why investors are cautious", said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 percent after wobbling between positive and negative territory in early trading. Low inflation and impressive growth/low unemployment have posed a perplexing conundrum for monetary policymakers who have chose to trust in the data and start tightening despite the fact that inflation remains well below target.

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