September 19, 2017 / 12:47 AM / a year ago

Dollar falls as traders await possible move on Fed bond purchases

NEW YORK (Reuters) - The dollar weakened against a basket of currencies on Tuesday in advance of a Federal Reserve meeting where policymakers are expected to decide on shrinking the central bank’s $4.2 trillion in bond holdings.

FILE PHOTO - U.S. Dollar and Japan Yen notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

The Fed’s possible move to roll back stimulus further has not stemmed the greenback’s weakness this year as other major central banks are considering steps either to slow their own bond purchases or raise interest rates.

Analysts widely anticipate Fed policymakers to announce a lowering of monthly bond purchases, starting in October, when their two-day meeting ends on Wednesday. They expect Fed officials would leave the door open for a rate increase at their Dec. 12-13 meeting.

“It’s just a restless market before the Fed,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

An index that tracks the dollar against six currencies was down 0.3 percent at 91.780, not far from the more than 2-1/2 year low of 91.011 set on Sept. 8.

“The biggest risk for the dollar is... if they cast doubt on a December rate hike,” Manimbo said.

The futures market implied traders saw a 58 percent chance of a rate increase at year-end, CME Group’s FedWatch showed.

The dollar had weakened against the yen ahead of U.S. President Donald Trump’s speech to the United Nations General Assembly, which some traders feared would heighten tensions between Washington and North Korea over the latter’s growing nuclear weapons programme.

While Trump harshly criticized the North Korean regime, it was not enough to spook most investors.

The greenback drifted 0.1 percent lower at 111.47 yen, below its eight-week peak of 111.87 set earlier on Tuesday.

In emerging markets, the Mexican peso fell 0.3 percent to 17.8125 peso per U.S. dollar following reports of extensive damage to buildings in Mexico City in the aftermath of the second major earthquake that rocked that country in less than two weeks.

Meanwhile, traders have been speculating whether the European Central Bank is moving closer to wind down its 2.3 trillion euro asset purchase programme.

ECB policymakers disagree on whether to determine a fixed date to end the programme when they meet in October, as the euro has jumped, Reuters reported.

The single currency fell briefly on the report.

Earlier on Tuesday, the yen hit a 21-month trough versus the euro at 134.15 yen, while the Swiss franc hit 1.1563 francs, its lowest against it since January 2015.

Reporting by Richard Leong; Additional reporting by John Geddie in London, Shinichi Saoshiro in Tokyo and Masayuki Kitano in Singapore; Editing by Diane Craft and Dan Grebler

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