FOREX-Dollar stands firm as investors eye Fed decision

FOREX-Dollar stands firm as investors eye Fed decision
FOREX-Dollar stands firm as investors eye Fed decision

* Dollar gains 0.1% ahead of Fed

* Policy statement due at 1800 GMT

* Analysts expect no major policy shift

* Safe-haven yen, euro, Swiss franc show strength

By Tom Wilson

LONDON, July 28 (Reuters) – The dollar made marginal gains on Wednesday after being pinned down earlier, with investors holding off on placing major bets ahead of the outcome of a U.S. Federal Reserve meeting.

The U.S. dollar index moved into positive territory after trading lower in Asian hours. The greenback was last up 0.1% at 92.534.

The Japanese yen, Swiss franc and the euro held onto the previous day’s gains in Asian trading hours, with the safe-haven yen trading at 109.80 per dollar and the euro at $1.1809.

The dollar has enjoyed a month-long rally after a hawkish shift from the Fed in June. Markets are waiting to see whether the Fed will provide any clues on the timing of tapering later in the day amid surging U.S. inflation.

The Fed publishes a statement at 1800 GMT followed by a news conference from Chair Jerome Powell at 1830 GMT.

Still, foreign exchange analysts said the chances were high that the Fed would not shift policy, given its view that the recent spike in inflation will likely be transitory and worries that growing COVID-19 cases could derail the global economy’s recovery.

“The spread of the Delta Variant may have provided a good reason to remain cautious and to postpone any important tapering announcement to the Jackson Hole Symposium in late August,” ING analysts wrote in a note.

Declining U.S. real yields, fuelled by concerns about high inflation and the economic outlook, also cast a shadow over the dollar earlier. The 10-year inflation-linked bond yield hit a record low overnight

The Chinese yuan pulled away from three-month lows hit on Tuesday, when it saw its biggest daily losses since October, after the country’s stock market stabilised following a bruising couple of days.

Still, the yuan’s bounce was modest and the risk-sensitive Australian and New Zealand dollars both fell around 0.3% as sentiment remained fragile.

“Many people’s constructive view on the renminbi … was partly premised on continued foreign capital flows into the domestic financial markets,” RBC Capital Markets analysts wrote.

“The risk from equity outflows will dominate in the near term.”

(Reporting by Tom Wilson in London; Additional Reporting by Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa)

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