Dollar Eases as Markets Await First Federal Reserve Decision Under Warsh
Market Reactions Ahead of the Federal Reserve Meeting
By Rae Wee
Dollar and Major Currencies Performance
SINGAPORE, June 17 (Reuters) - The dollar eased on Wednesday ahead of the Federal Reserve's first policy decision under Chair Kevin Warsh, with lingering optimism over an interim U.S.-Iran peace deal underpinning risk appetite and dampening demand for the U.S. currency.
The yen found little respite against a weaker greenback and teetered further into intervention territory, after a well-telegraphed Bank of Japan (BOJ) rate hike delivered few surprises.
Moves in currencies were largely subdued in the early Asian session, with investors hesitant to take on large positions ahead of the Fed's rate outcome later in the day.
The euro steadied at $1.1611 while sterling was little changed at $1.3430.
The New Zealand dollar edged slightly higher to $0.5833.
Expectations from the Federal Reserve
The Fed is widely expected to stand pat on rates at Warsh's debut meeting. The statement, economic projections and news conference, however, will be scrutinised for any signals of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.
Analyst Insights on Fed Policy
"The Fed is...likely to signal a neutral bias for monetary policy going forward," said Erik Weisman, chief economist and portfolio manager at MFS Investment Management.
"(Warsh) will face a barrage of questions about how he expects to steer the Fed in the direction he has indicated over the years. It is early days yet. The new Fed Chair may still be gauging the mood of the committee that he has to carry to deliver successful policy. He may not want to make any statements without first forging consensus within the Fed."
Against a basket of currencies, the dollar eased slightly to 99.53, unwinding some of its safe-haven gains made as details emerged of the U.S. and Iran's interim agreement to end the war in the Middle East.
Yen on Tenterhooks After BOJ Decision
The yen last stood at 160.43 per dollar, leaving traders on alert for any potential intervention from Japanese authorities to shore up the ailing currency.
BOJ Rate Hike and Market Response
The BOJ on Tuesday raised interest rates to a 31-year high in a landmark step in its policy normalisation, signalling readiness to tighten further as it focuses on taming price pressures from the Iran-war-induced energy shock.
Policymakers offered few clues on the timing of the next rate hike, however.
Strategist Commentary on BOJ Outlook
"While the press conference...contained some optimistic signals regarding the outlook for the Japanese economy, it failed to move the needle much regarding market expectations around the timing of the next BOJ policy move," said Jane Foley, senior FX strategist at Rabobank.
"Despite the significance of the BOJ's decision to take its policy rate back to 1% today, the meeting was still overshadowed by that of the Fed."
Other Central Bank Moves
Elsewhere, the Australian dollar was flat at $0.7066.
Reserve Bank of Australia Holds Rates
The Reserve Bank of Australia held its cash rate steady at 4.35% on Tuesday, saying the economy was slowing in the face of tighter financial conditions but warning it might yet raise rates again if needed to control inflation.
(Reporting by Rae Wee; Editing by Jacqueline Wong)
