TOKYO (Reuters) – Major currencies held tight areas Wednesday as investors looked to a U.S. Federal Reserve policy meeting for any signs that it could start raising rates earlier or allowing bond yields to rise further.
The dollar index stood at 91.866, after rising for the last three sessions, drawing largely support from U.S. high bond yields on the back of strong economic recovery expectations.
Feeding policymakers are expected to nod to such a rosy outlook, by predicting that the U.S. economy will grow in 2021 at the fastest pace in decades, while the COVID-19 vaccine campaign speed collection and a $ 1.9 trillion relief package washing through to homes. .
A bigger question for market players is whether the Fed will signal any bias to start raising interest rates in 2023, earlier than previously said, in a move that could fuel another rally in dollars.
“The Fed may review the economic forecast. But to raise its median forecast of Fed funding level in 2023, it needs to raise four or more of their projections. So the market’s expectations for earlier rate hikes may not be determined by the Fed, ”said Shinichiro Kadota, Barclays’ senior money strategist.
“But on the other hand, the Fed seems to be sitting idle on raising rates in the long run as well. All things considered, it’s hard to expect the dollar / yen to weaken after the FOMC, although it could face more headaches if it tests new highs . ”
The dollar stood at 109.01 yen, not far from Monday’s nine-month high of 109.365.
The euro changed hands at $ 1.1903, after declining over the past three days, with immediate support at its 200-day moving average of $ 1.1843 and 3 1/2-month low last week of $ 1,18355.
But possible delays in vaccinations could put pressure on the common currency as Sweden and Latvia along with countries have suspended their use in another blow to European vaccine distribution .
The European medicines watchdog will release the results of its study into inflammatory events, blood clots and low platelet count in AstraZeneca coronavirus vaccine recipients on Thursday afternoon.
“As a result, the business sentiment of the euro zone could be further hurt and new selling pressure on the euro could be on the subject of low volatility,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
Among major currencies, the U.S. dollar and the British pound were strengthened by the accelerated pace of vaccine spread in the United States and Britain.
Investors were so focused on economic downturns due to vaccinations that weak U.S. economic data released Tuesday, including retail sales and outside business, largely rejected sentiment.
The British pound bounced back to $ 1.3899, after the European pharmaceutical watchdog said there was no evidence that the AstraZeneca vaccine was dangerous.
Reciting with Hideyuki Sano; Edited by Sam Holmes