Forex – Dollar Slips Back With Riskier Currencies in Demand

(C) Reuters.

By Peter Nurse

Investing.com – The U.S. dollar has seen selling in early European trade Wednesday, as traders look to take on risk ahead of key central bank meetings. Oil prices are pushing higher and more countries are looking to reopen, adding to the positive tone.

At 2:55 AM ET (0655 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.763, down 0.2%, while EUR/USD rose 0.3% to 1.0848. GBP/USD climbed 0.3% to 1.2462 and USD/JPY fell 0.3% to 106.55.

That said, moves have been cautious as markets look to the U.S. Federal Reserve, which concludes its two-day meeting later Wednesday, and the European Central Bank, which meets on Thursday, for guidance.

The U.S. central bank is unlikely to come up with new policies after the excitement of its last meeting, but investors will be looking for clues as to its future policy path.

“Traders are expecting a significant rewrite in today’s FOMC policy statement when the Fed will, in unambiguous terms, send clear messaging that extraordinary policy settings will remain in place for as long as it takes,” Stephen Innes, chief global market strategist at AxiCorp, wrote in a research note.

Pressure is also mounting on the European Central Bank to reopen its tool box given the region’s national governments are struggling to agree on joint fiscal action.

This follows the surprise move late Tuesday by rating agency Fitch to downgrade its investment rating on Italy’s debt to BBB-, one notch above junk, citing the country’s rising debt levels.

The dollar has pushed lower, noted analysts at Danske Bank, in a research note, “as risk assets performed and oil edged higher; even USD/JPY edged lower but EUR/USD failed to break 1.09.”

Helping Wednesday’s tone has been the move higher in oil prices. The recent turmoil in the crude market has prompted many to cut back on risk, and any sign of a return to something approaching normalcy will help riskier currencies.

At 2:55 AM ET, U.S. crude futures traded 13% higher at $13.98 a barrel, while the international benchmark Brent contract rose 1.9% to $23.16.

One of these risk-sensitive currencies which has been in demand as conditions become more favorable is the Australian dollar, rising some 6% on the month and 18% from March’s 17-year low.

In a world worrying about the potential impact of deflation, the country reported earlier Wednesday that headline inflation accelerated 2.2% in the first three months of the year, the fastest pace since the third quarter of 2014, to climb back within the central bank’s 2%-3% target.

At 2:55 AM ET, AUD/USD traded at 0.6536, up 0.7%.