Dollar edges lower on central bank meeting

The dollar eased slightly to 99.50, unwinding some of its gains as details emerged of the U.S. and Iran’s interim agreement to end the war in the Middle East

The dollar eased slightly on Wednesday ahead of the U.S. central bank’s first policy decision under chair Kevin Warsh, with lingering optimism over an interim Iran-U.S. peace deal underpinning risk appetite and dampening demand for the currency.

The U.S. central bank 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 bank dropping its easing bias as officials grow more hawkish on inflation risks.

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, Weisman said.

Against a range of currencies, the dollar eased slightly to 99.50, unwinding some of its gains as details emerged of the U.S. and Iran’s interim agreement to end the war in the Middle East.

Moves in currencies were largely subdued in the Asian session.

The yen found little respite against a softer dollar, stuck firmly at levels that traders see as a red zone for further currency intervention. A well-telegraphed Bank of Japan (BOJ) rate hike on Tuesday delivered few new clues on the outlook for policy.

The yen last stood at 160.27 per dollar, leaving traders on alert for any potential intervention from Japanese authorities to shore up the persistently weak currency.

The BOJ on Tuesday raised 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 war-induced energy shock.

However, policymakers offered few clues on the timing of the next rate hike.

The euro steadied at $1.1613 while sterling was little changed at $1.3431.