Dollar languishes ahead of Fed meeting, Asian currencies calmer
The dollar steadied on Wednesday before a Federal Reserve meeting to determine policy for an uncertain economy and as major investors in Asia continued cashing out of U.S. assets.
News that the United States and China are due to talk on Saturday eased concerns about a trade war that has shaken investor confidence in the dollar and U.S. markets. Fed Chair Jerome Powell was expected to say more data is needed before deciding the U.S. central bank's next move.
There appeared to be some letup in the selling of dollars since last week, which has been driven by investors globally, particularly in lower-yielding emerging markets, swapping out of the currency or bringing money home.
A record rally in the Taiwan dollar spread outward, driving surges in currencies in Singapore , South Korea , and elsewhere in Asia this week.
Taiwan's currency has surged more than 10% against the U.S. dollar since U.S. President Donald Trump's April 2 announcement of sweeping tariffs on trade partners. It was 0.65% weaker on Wednesday.
The Korean won reached a six-month high at Wednesday's opening, but subsequently fell.
The yuan weakened as China announced a long-awaited rate cut.
China's central bank governor said on Wednesday the bank would cut the amount of cash that banks must hold as reserves, the first reduction in 2025, to prop up the world's second biggest economy amid the simmering trade war.
The dollar index was little changed after slipping 0.2% on Tuesday, its third-straight decline. The euro edged 0.2% lower to $1.1340, giving up some gains following Friedrich Merz's election as chancellor of Germany.
The Fed is widely expected to leave benchmark interest rates unchanged on Wednesday. Traders are betting the Fed will resume its easing cycle in July, but some economists reckon high inflation will prevent any rate cuts at all this year.
Currency markets seemed a bit calmer on Wednesday following a stunning 10% two-day leap for Taiwan's currency.
The Hong Kong dollar traded a bit away from the strong end of its peg and the Japanese yen was 0.4% weaker, snapping a three-day advance as Japanese markets reopened after a two-day holiday.
About $33 trillion of global money is invested in U.S. markets, of which $14.6 trillion was in debt as at the end of 2024, and only a small fraction is hedged for currency volatility.
Japanese pension giant GPIF and life insurance firms are among the biggest holders of U.S. assets. The country's exposure to dollar markets was about $2 trillion at the end of 2023.
A stronger Japanese currency is bad for their returns, as it means less yen per dollar investors eventually bring home.
Source : Reuters
