Dollar Restrained Near Four-Month Lows Ahead Of Yellen’s Debut

The dollar stood near its lowest level in more than four months against a basket of currencies on Wednesday, on some trepidation ahead of Janet Yellen’s inaugural policy review as the Federal Reserve’s chief.

Global markets breathed a sigh of relief after Russian President Vladimir Putin said he did not plan to seize other regions of Ukraine, a day after Crimean citizens voted to be annexed by Moscow.

The dollar index .DXY stood at 79.382, within a whisker from a 4-1/2-month low of 79.268 touched last Thursday. In the past two years, there has been strong support for the index around 78.60-79.00.

The Fed is widely expected to continue to reduce the size of its monthly bond purchase program by $10 billion at the end of its two-day policy meeting later in the day, the first policy review since Yellen took the helm at the world’s most powerful central bank.

Traders are keenly focused on the Fed’s forward guidance on policy, with many expecting the Fed to reassure markets that interest rate hikes are still a long way off despite the unemployment rate easing faster than expected.

The Fed previously said that it would not raise interest rates until joblessness fell to at least 6.5 percent, a pledge that policymakers thought would hold until at least mid-2015. But that rate hit a five-year low of 6.6 percent in January, before rising to 6.7 percent in February.

Expectations that Yellen will pursue a broadly dovish stance have helped to rein in U.S. Treasury yields, which in turn undermined the attraction of the dollar for bond investors.

“Many investors had probably expected the dollar to strengthen this year because the U.S. economy looked in better shape than others,” said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

“But their positioning has probably been damaged by the Ukraine crisis and poor economic data due to bad weather, and that’s probably a reason for the dollar’s struggles recently,” he added.

RESURGENT EURO

The softness in the dollar index also reflected a resurgence in the euro, which fetched $1.3930, not far from $1.3967 hit on Thursday, its highest level in 2 1/2 years.

Although the single currency was pitched by many banks at the start of 2014 as one of this year’s likely losers, it has drawn strength from a recovery in the euro zone, the currency bloc’s strong current account balance and an absence of fresh easing steps from the European Central Bank.

The euro also stood at 83.97 pence, having hit a three-month high of 84 pence sharp.

The single currency has also quickly pared its losses triggered on Tuesday by a sharp drop in Germany’s ZEW survey of investor and analyst sentiment, which was due largely to the Ukraine crisis.

The Australian dollar stood near a three-month high of $0.9136 hit on Tuesday, supported by a return of risk appetite. It last sit at $0.9132.

The New Zealand dollar stood near 11-month high, thanks to the Reserve Bank of New Zealand’s rate hike last week and the prospects of further tightening. It was last at $0.8619, after having risen to $0.8641 on Tuesday.

The yen held onto much of its recent gains with the dollar trading at 101.40 yen, near one-month low of 101.20 yen hit on March 3.

Source : Reuters