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Saturday, May 21, 2022
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Dollar lower, Fed monetary policy in focus

Dollar lower

The Fed will convene a two-day policy meeting to hand down its policy decision starting Tuesday

The dollar was down on Friday morning in Asia. Fears that inflation will remain high and that the U.S. Federal Reserve will tighten its monetary policy soured investor sentiment, driving gains for the safe-haven Japanese yen vis-à-vis the riskier Australian dollar.

The U.S. Dollar Index edged down 0.06% to 95.665 by 3:41 AM GMT. The USD/JPY pair dropped 0.37% to 113.66, a one-week low. The AUD/USD pair dropped 0.50% to 0.7189 and the NZD/USD pair declined 0.36% to 0.6730.

The USD/CNY pair inched up 0.03% to 6.3430. The GBP/USD pair edged down 0.01% to 1.3593, near its lowest level since Jan. 11.

The U.S. currency took a breather from its recent gains as a rally in U.S. Treasury yields cooled. However, it was still headed for its best week in two months.

The Australian dollar dropped as much as 0.57% to 82.02 yen, its weakest level in a month, and as last down 0.32% to trade at $0.72035.

U.S. shares suffered a sharp selloff overnight in the final hours of trading, while Asian counterparts were down on Friday. U.S. Treasury yields retreated from multi-year highs. However, U.S. yields advanced, driven by market expectations that the Fed will tighten monetary policy faster than anticipated.

Fed funds futures have already fully priced in an interest rate hike in March 2022 and a total of four hikes within the year.

The Fed will convene a two-day policy meeting to hand down its policy decision starting Tuesday. Investors will be on the lookout for clues to the Fed’s timeline for both interest rate hikes and asset tapering.

The greenback hit a more-than one-week high on Thursday and was up 0.65% for the week. It rebounded from the previous week’s 0.61% slide.

Despite recent volatility, the dollar could rise further as the Fed tightens its monetary policy, according to some investors.

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