Dollar puts hopes on Fed, Biden to end month-long slide By Reuters

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© Reuters. FILE PHOTO: A US dollar bill is seen in front of a stock chart in this image illustration

By Hideyuki Sano TOKYO (Reuters) – The dollar will follow the lead of the US Federal Reserve policy statement and a speech by President Joe Biden on Wednesday, as he seeks to extend a recovery from an eight-week low touched previously. in the week in front of a basket of coins. He stood at 90.968, rebounding from Monday’s low of 90.679, its lowest since March 3, although investors aren’t convinced whether its downtrend since late March has ended. The dollar’s decline was largely due to declining bets that the Federal Reserve could begin laying the groundwork for future policy tightening as soon as the US economy recovers rapidly. On Wednesday, the US central bank is expected to maintain its policy setting and Fed Chairman Jerome Powell is expected to repeat his dovish message. But some analysts say signs of rising inflation expectations could push the Fed to drop its rhetoric that a policy tightening is still a long way off. Investor inflation expectations, measured by the equilibrium inflation rate (EIB) calculated from US inflation-linked bonds, rose above 2.40% on Tuesday, the highest level. since 2013. “In a way, the increase in the EIB above 2% is what the Fed has been wanting. Still, going too far could raise alarm in the Fed. The Fed probably won’t be able to ignore a increase in EIB above 2.5%, “said Makoto Noji, chief FX strategist at SMBC Nikko Securities. The Federal Reserve said last year that it aims to bring average inflation to around 2% and allow it to exceed 2%, rather than trying to limit it to around 2%. The euro fell 0.1% to $ 1.2080, down from Monday’s two-month high of $ 1.2117. The dollar stood at 108.85 yen, having risen 0.59% overnight and extending its recovery from a seven-week low of 107.48 touched last week, along with gains in US bond yields. The yen was also lagging behind as Japan’s economic recovery is hampered by recent increases in COVID-19 cases and after the Bank of Japan acknowledged that inflation will not reach its key 2% target until early 2023. “, the Bank of Canada has already started downsizing. The Bank of England could be next. The ECB could leave a hint of downsizing in June. And we’ll hear from the Fed today. Compared to all of that, there’s the feeling the BOJ is quite behind, “said Jun Arachi, currency strategist at Rakuten Securities. The Japanese currency even fell against underperforming European currencies, hitting a two-and-a-half-year low against the euro, at 131.57 per euro and a five-year low for the Swiss franc, at 119.20 per franc. In addition to the Fed, investors await President Biden’s first speech at a joint session of Congress, also scheduled for Wednesday. Biden is expected to implement a plan to raise taxes on the wealthiest Americans, including the largest increase in taxes on investment earnings, to fund about $ 1 trillion in child care. News reports about his tax hike plan affected markets’ risk appetite only briefly on Friday, but analysts believe there could be a bigger backlash if the plan becomes more concrete. “In addition to fiscal policies that have re-emerged as a market focus, his stance on diplomacy should draw attention given the recent tensions with China and Russia,” said Shinichiro Kadota, senior strategist at Barclays (LON :). Elsewhere, the Australian dollar fell 0.35% to $ 0.7739 after the country’s consumer price was weaker than expected. In crypto assets, bitcoin extended its rebound from a low on Sunday to $ 55,221. Ether hit a record $ 2,711.6 in Asia on Wednesday.