Dollar Edges Lower Ahead of Fed Meeting; Yuan Weakens

The dollar edged lower in early European trade Tuesday, slipping from a month high, ahead of the start of this week’s crucial Federal Reserve meeting, while the yuan remained under pressure over China Evergrande Group’s debt woes.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 93.130, having climbed to a high of 93.455 for the first time since Aug. 23.

USD/JPY rose 0.2% to 109.57, EUR/USD climbed 0.1% to 1.1736, GBP/USD rose 0.2% to 1.3680, while the risk sensitive AUD/USD rose 0.4% to 0.7277, rebounding from a three-week low.

The Fed starts its two-day policy meeting later Tuesday, and trading ranges are likely to be limited ahead of Wednesday’s press conference amid expectations the central bank will provide more information about when it will start its asset tapering.

“We think there will be a certain degree of acknowledgement that the current level of monetary accommodation may no longer be warranted and that asset purchases may start to be unwound by year-end,” said analysts at ING, in a note.

Meanwhile, USD/CNY traded flat at 6.4662, after weakening as far as 6.4879 on Monday for the first time since Aug. 23 amid worries over whether important property giant China Evergrande Group (HK:3333) will default on its upcoming due payments given fears of potential contagion. Turnover remains depressed by the extended public holiday in China, which ends on Wednesday.

Additionally, NZD/USD rose 0.1% to 0.7028, with gains held back by Reserve Bank of New Zealand assistant governor Christian Hawkesby hinting that the central bank would move in 25 basis point increments, instead of the widely expected 50 basis point hike.

USD/HUF fell 0.1% to 301.24 and EUR/HUF dropped 0.1% to 353.32, with the Hungarian central bank set to hold a policy-setting meeting later Tuesday. The bank is expected to raise its benchmark rate by a quarter-point on Tuesday to 1.75%, according to the median estimate in a Bloomberg survey, only marginally less than the 30 basis-point in increases in each of the past three months.