The U.S. dollar saw muted trade early Wednesday, taking a breather from a recent climb that had flipped the currency to green for 2018.
The greenback set a fresh high for the year earlier this week in the lead-up to the Federal Reserve meeting that concludes Wednesday afternoon, even though the meeting isn’t expected to offer much by the way of formal change to the central bank’s outlook for inflation or its so far go-slow approach to tightening interest rates.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.16% which measures the buck against a basket of six currencies, was 0.1% lower at 92.349.
The benchmark logged a 1.9% gain for April, according to FactSet data, its best month since November 2016—the month of the presidential election. For the year to date, the gauge is now up about 0.3%.
The broader WSJ U.S. Dollar Index BUXX, +0.14% was down 0.1% at 86.06 Wednesday.
The euro EURUSD, -0.1251% firmed to $1.2010 from $1.1992 on Tuesday, when it fell below the $1.20-mark for the first time since January.
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The British pound GBPUSD, +0.0661% fetched $1.3661, up versus $1.3612 late Tuesday in New York.
Japan’s yen USDJPY, +0.06% also strengthened, with the greenback only buying ¥109.77, down from ¥109.86 on Tuesday.
Against its Canadian rival USDCAD, +0.0856% , the U.S. dollar also pulled back, last fetching C$1.2839 versus C$1.2852 late Tuesday.
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What is driving the market?
The U.S. dollar retreated ahead of the Federal Open Market Committee’s policy statement, which is due at 2 p.m. Eastern. Otherwise, Europe and Asia investors were back from their early May holidays, but trading in major pairs was rather rangebound, retracing some of Tuesday’s action.
Fed officials are due to wrap up a two-day meeting at which policy makers are expected to leave interest rates on hold. Market participants are watching for any change to plans for a tightening path of two more rate increases in 2018.
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Meanwhile, GDP across the 19 countries that share the euro grew by 0.4% in the first quarter, compared with the last quarter of 2017 and by 1.7% year on year, EU statistics agency Eurostat said. The reading was largely in line with economists’ forecasts, but well below the 0.7% quarterly rises seen in the previous three quarters.
The growth rate pushed the euro zone behind the United States, but still ahead of the U.K., which last week reported its weakest quarterly growth since 2012.
Meanwhile, the Bank of Japan may raise its long-term interest rate target and slow asset purchases further later this year as a small step toward normalizing crisis-era monetary policy, former central bank board member Sayuri Shirai said on Wednesday, according to Reuters.
The central bank’s decision last week to remove a time frame for hitting its elusive 2% inflation target underscores a desire to slow an unsustainable pace of asset purchases, Shirai said, according to the report.
What are strategists saying?
“No formal [Fed] policy change is expected, though it’s quite telling of the markets’ hawkish disposition that the probability of a hike [is still given a slight chance] despite this being a ‘second tier’ announcement without a forecast update or a presser. Investors will be most interested in the accompanying statement, looking for language ratifying the upshift in tightening bets,” said Ilya Spivak, currency and commodities strategist at Daily FX.
”The U.S. dollar has seen something of a resurgence in recent weeks as well, with the slight increase in interest-rate expectations in the U.S. having coming at the same time as a softening in the tightening case for other central banks as well as some very strong earnings reports from U.S. corporates,” said Craig Erlam, senior market analyst with Oanda.
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“With the 2-year [Treasury] yield now at its highest since 2008 and the 10-year above 3%, after seriously struggling to breach this threshold for months, the near-term could be favorable for the greenback as it attempts to claw back some of the losses incurred over the last 16 months,” Erlam said.
What else was in focus?
ADP’s private-sector employment stood at 204,000 in April, compared with 241,000 previously. The data point typically serves as a preview to Friday’s more closely watched jobs report from the U.S. government, also known as the monthly nonfarm payrolls data.
Check out: MarketWatch’s Economic Calendar
In other assets, Apple earnings looked to help the tech-studded Nasdaq COMP, +0.30% but other stocks indexes DJIA, -0.19% SPX, -0.12% were struggling for much direction in the early going.
The 10-year Treasury note TMUBMUSD10Y, +0.00% last yielding 2.974%, threatening a retest of the recently hit, and closely watched, 3% line.