Fed meeting: All eyes on Fed meeting, yen slips again

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HONG KONG: The yen remained under pressure on Tuesday and the Australian dollar was battered by the latest shutdowns in China following fresh outbreaks of COVID-19, but movements were more muted than in recent days as the eyes of Traders were looking ahead to this week’s Fed meeting.

The U.S. Federal Reserve is expected to raise rates for the first time since the pandemic at its meeting that ends Wednesday, as traders seek guidance on the pace of future rate hikes.

Markets are pricing in a 25bp hike at this meeting, according to the CME’s Fedwatch tool, but prices have risen to indicate a 70% chance of a bigger 50bp hike at its meeting next in May, due to inflation concerns.

“We believe Powell’s statement and press conference after the meeting will influence market prices for a 50 basis point rise in May and beyond, and that will impact the current US dollar. day,” said Carol Kong, FX strategist at Commonwealth Bank of Australia.

The dollar index, which measures the greenback against six major peers, was at 99.108, not far from the 99.415 hit a week ago, its highest level since May 2020.

The yen was at 118.37 to the dollar on Tuesday morning, having fallen sharply in recent sessions as the contrast between rising benchmark rates in the United States and low rates in Japan becomes increasingly apparent as the Fed begins to tighten.

The return of risk sentiment in the markets, partly on the back of signs of a negotiated end to the war in Ukraine, also removed some of the support for the safe-haven Japanese currency.

The Russian and Ukrainian delegations held a fourth round of talks on Monday, but no new progress was announced. Discussions were to resume on Tuesday.

The Euro remained fairly stable at $1.0947.

Traders were also watching the Chinese yuan which weakened to a one-month low against the dollar on Monday, breaching a key threshold, under pressure from rising expectations of monetary policy easing and concerns over the rapid spread. locally transmitted cases of coronavirus, which caused lockdowns in some cities.

The offhsore yuan was weaker at 6.398 to the dollar, although the People’s Bank of China defied market expectations by keeping the key interest rate unchanged on Tuesday.

The Australian dollar was under pressure at $0.7190, after falling 1.5% on Monday, hurt by the halt in the surge in commodity prices that had pushed it higher earlier in the month.

Kon said the situation in China is also weighing on the Aussie.

The British pound was also beaten to $1.3005, while in the cryptocurrency world, bitcoin fell 1.7% to around $39,000.

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