Dollar in Holding Pattern as Fed Meeting Gets Underway
The dollar was roughly unchanged against a basket of major currencies on Tuesday as a mixed report on U.S. housing activity weighed on sentiment but easing geopolitical uncertainty limited losses in the greenback.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.01% to 91.80.
The dollar came under pressure after a pair of mixed reports on the U.S. housing sector tapered investor expectations of solid third quarter-growth.
The Commerce Department said Tuesday U.S. homebuilding fell 0.8% to a seasonally adjusted annual rate of 1.18 million units in August, well below economists’ estimates of a 1.7% rise.
The report also highlighted a sharp 5.7% rise in building permits to a rate of 1.3 million units. That was the highest level since January, beating forecasts of a 0.8% decline.
The duo of reports come as the Federal Open Market Committee (FOMC) two-day meeting got underway on Tuesday amid expectations the policymaking FOMC will announce plans to begin unwinding its $4.5tn bond portfolio at the conclusion of its meeting on Wednesday.
As well as plans for balance sheet unwinding, the Fed’s Summary of Economic Projections and dot-plot are expected garner much of the attention, as investors are keen to assess whether the slowing pace of inflation has altered the central bank’s longer-term view on interest rates.
Downside momentum in the dollar was limited, however, as it made strong gains against its safe-haven counterparts like the yen and Swiss franc amid fading geopolitical uncertainty on the Korean Peninsula.
EUR/USD tacked on 0.09% to $1.1966 while EUR/GBP gained 0.25% to £0.8879, despite data showing Eurozone institutional investors were less optimistic about the six-month economic outlook for the 28-member bloc.