Looming Fed Verdict has U.S. Dollar on the Defensive

The dollar was on the back foot against the euro and the yen on Wednesday as traders cautiously looked to what the Federal Reserve will do with its stimulus — a major force that has simultaneously underpinned riskier global assets and restrained the dollar in recent years.  The dollar’s index stood at 80.02, having slipped from Monday’s high of 80.419, with immediate support seen at the Dec. 11 low of 79.757.

Although a steady run of firm U.S. economic data in recent weeks has raised speculation that the Fed could reduce its bond buying at its policy meeting ending on Wednesday, a majority of investors still think stimulus-tapering will happen early next year.

“Considering that share market fell after the end of QE1 and QE2, there’s a chance we could see similar negative impact,” said Shin Kadota, chief FX strategist at Barclays, referring to the Fed’s previous episodes of transitioning from one asset-purchase phase to the next.


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