Euro Firm Against Dollar Ahead of Fed Decision
The euro remained firmer against the dollar Wednesday, on continuing hopes for action out of European officials over the region’s crisis, and expectations that the Federal Reserve will unveil some sort of further monetary-policy easing at the conclusion of its meeting two-day meeting.
The euro EURUSD +0.07% was little changed at $1.2679 from $1.2698 on Tuesday.
The single European currency popped above $1.27, its best level in almost a month, as bond yields in Spain and other so-called peripheral countries eased on reports that Germany would approve a plan to have the euro-zone bailout fund buy the sovereign debt of troubled member nations.
German officials denied the report, but the yield on Spain’s 10-year government bond (ES:10YR_ESP) -1.89% remained under the psychologically important 7% level, moving down 3 basis points to 6.94%.
The dollar index DXY -0.08% , which measures the dollar against a basket of six currencies, fell to 81.437 from 82.002 in late North American trading Monday, Market Watch reported.
Focus for Wednesday remains on the Fed. Investors are waiting to see if the central bank will extend its $400 billion Operation Twist bond-buying program, which is due to expire at the end of this month
Simon Smith, head of research at FxPro, said the Fed announcement may turn into a nonevent for the dollar.
“The impact on the dollar of Fed actions is becoming more muted, both because the Fed is pushing the boundaries of their policy arsenal, but also because, in a relative sense, other major central banks are largely going along the same road, albeit with slightly different route maps,” said Smith.
“So whether they go ahead or not with extending Operation Twist … is only likely to have a transitory effect,” Smith said in emailed remarks, adding that an extension is still looking more likely. “No extension could see the dollar higher, but, given the extent of long dollar positions at present, the risk is that any dollar rallies are sold.”
Jane Foley, senior currency strategist at Rabobank International, said markets could be disappointed by a lack of aggressive action from the Fed.
“Insofar as it could even be argued that the relative stability in the markets since the middle of last week limits the need for central banks to take action urgently, the fundamentals could be suggesting that there is good reason for the U.S. dollar to strengthen over the coming sessions,” Foley said in emailed comments.
“However, the market is still buoyed by hope of better news from the euro zone this week, and this suggests that EUR/USD will continue to run into good support,” she said.
The Group of 20 meeting concluded Tuesday with Europe asked to “break the feedback loop” between weak banks and weak sovereigns. Germany was in the spotlight with reports of pressure from other members on German Chancellor Angela Merkel to hold the union together.
Against the Japanese yen USDJPY +0.00% , the dollar bought ¥78.90, compared to ¥79.06 late the previous day.
The British pound GBPUSD +0.02% traded at $1.5736, little changed from $1.5740 Tuesday.
