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USD drops ahead of Fed policy meeting

16 Sep 2020

Midweek, the U.S. Dollar fell ahead of the Federal Reserve’s policy meeting, which could help the world’s largest economy recover from its steepest decline in decades, Reuters reports. 

Fed officials are not yet prepared to convert the framework into a promise to keep the central bank’s key overnight lending rate in its current 0%-0.25% range, until certain economic targets such as 2.5% inflation are reached. 

Lewis Alexander, chief U.S. economist at Nomura, wrote in a note before the Fed’s meeting: “We expect the Committee to adopt this type of outcome-based forward guidance by the end of the year.”

Moreover, Vassili Serebriakov, an FX strategist at UBS in New York said, “I think the bar for a dovish surprise is quite high at this point, partly because the toolkit is somewhat limited.” 

“I would say the biggest impulse this week was the stronger activity data for the month of August from China, and maybe a bit of ongoing optimism about the vaccine.”

On the other hand, the offshore yuan increased to 6.7536, whereas the Japanese yen gained against the USD, at 104.70. 

Strategist at Societe Generale in London, Kenneth Broux, “Major currencies are up against the dollar including the pound with the oil price rise also helping. It seems to be risk on into the Fed.”