Dollar Slides Despite Expectation of Rate Hike
The dollar remained soft despite expectation of the first rate hike this year ahead of the meeting of the Federal Open Markets Committee (FOMC) on Tuesday and Wednesday. Investors expect a hawkish Federal Reserve to send the greenback up.
The U.S. dollar index that tracks the greenback against a basket of six major currencies last stood at 89.45 at 11pm ET (03:00 GMT), down 0.02%. The dollar continued to look bearish as it slipped to a two-week low at 89.33 on Tuesday morning.
Investors await the FOMC meeting to see whether the Fed is planning three or four rate hikes this year. Analysts are also watching closely to see what will come from new Fed head Jerome Powell’s first meeting as chair. The Fed’s target inflation rate is 2%, and it has said it expects to hit that by the end of the year.
The USD/JPY pair gained 0.12% to 106.23. The pair has been hit by a series of events recently, with some pressuring the pair due to risk aversion and some giving the pair a lift due to expectation of a rate hike. The hawkish Fed is sending the dollar up, but U.S. President Donald Trump’s tariff plans hampered investors’ risk appetite.
On Tuesday, Japan's trade minister Hiroshige Seko said there was a “high possibility” the country would be exempted from U.S. tariffs on steel and aluminum. Seko noted Japanese steel and aluminum products were “irreplaceable” to the U.S. industry.
The AUD/USD pair traded at 0.7711, down 0.10%. The Aussie reacted a little to the release of the Reserve Bank of Australia’s minutes on Tuesday morning. The Bank remained cautious about a stronger Aussie hampering inflationary efforts, but was optimistic about the GDP growth beating expectation in 2018.
Elsewhere, The People’s Bank of China set the fix rate of yuan against the dollar at 6.3246 versus the previous day’s 6.3320. The USD/CNY pair eased 0.12% to 6.3263. Eyes will be on the escalating trade tensions between the U.S. and China, as the protectionist Trump administration is targeting China.
Chinese President Xi Jinping’s comments on Tuesday also gathered some attention as he wrapped up the People’s Congress and said China would expand reform and opening while stepping up efforts to solve environmental problems