The US Dollar remained stable above a five-month low against major currencies on Tuesday as investors looked ahead to the Federal Reserve’s latest economic forecasts, amid growing concerns over escalating global trade tensions.
Meanwhile, the Euro stayed below last week’s high of $1.0947, the strongest level since 11th October, as markets awaited a key vote on Germany’s large-scale stimulus plan. Whereas the Yen, which had recently gained on safe-haven demand, retraced some of its advances.
Concerns that US President Donald Trump’s aggressive tariff policies could lead to a broader economic slowdown have weighed on the Dollar, exacerbated by a series of weak sentiment surveys.
This week, the Federal Reserve, along with the Bank of Japan and the Bank of England, is expected to keep interest rates unchanged, leaving investors focused on any signals from policymakers about future monetary policy, Reuters reports.
The Federal Reserve will release updated economic projections, providing investors with the clearest insight yet into how US central bankers assess the potential impact of the Trump administration’s policies on the economy.
“Inflation expectations have gone up, but sentiment has gone down…It’s a very confusing point in time, and the Fed, I don’t think they have enough data either way,” according to Bart Wakabayashi, Tokyo branch manager at State Street.
Markets remain cautious, currently factoring in around 60 basis points of Federal Reserve rate cuts, just over two reductions, by year-end.
While there’s a possibility the Fed could maintain its outlook for two more cuts, especially if it raises its inflation forecast, Citi FX strategists anticipate a more dovish stance from the central bank.
“If faced with lower growth/employment and higher inflation, we suspect the Fed will err on the side of caution and towards the growth/employment picture,” they commented.
The Dollar index, which tracks the currency against six major peers, has declined about 6% from its more than two-year high of 110.17 reached in mid-January.
Most recently, it edged up 0.13% to 103.59 but struggled to gain momentum beyond last Tuesday’s five-month low of 103.21.
At the time of writing, the Euro dipped slightly, trading at $1.0907.