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Dollar nudged off 3-week peak as US yields dip before Jackson Hole meet

Wed Aug 21 2019


The dollar was on the defensive on Wednesday, elbowed off a three-week peak by a reversal in US yields as they headed south again ahead of a meeting of central bankers, at which the Federal Reserve is expected to give clues on further rate cuts.


Central bankers will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Fed Chair Jerome Powell.


His comments will take centre stage especially after last week's inversion of the US yield curve -- widely regarded as a recession signal -- boosted expectations for the Fed to lower interest rates at its September policy meeting. Faced with rising risks to the US economy, the central bank in July cut rates for the first time since the financial crisis.


The dollar index against a basket of six major currencies was flat at 98.210 after shedding 0.2 per cent overnight.


The index had climbed to 98.450 on Tuesday, its highest since August 1, as US yields bounced back from multi-year lows at the week's start on signs global policymakers were ready to step up stimulus support to stave off a steep economic downturn.


US yields, however, declined overnight on the prospect of more easing by the Fed.


Takuya Kanda, general manager at Gaitame.Com Research Institute, believes US President Donald Trump's “strong desire for deep rate cuts” may raise hopes among some traders of strong easing signals at Jackson Hole. But he also warned that Powell may opt to give little away in his speech as the Fed prepares for the September policy review.


Investors will also be looking for clues on the Fed's plans in the minutes of its July policy meeting due later on Wednesday.


The dollar was little changed at 106.330 yen after shedding 0.4 per cent the previous day, while the euro was steady at $1.1094, having put on 0.2 per cent overnight.


The single currency dipped briefly after Italy's Prime Minister Giuseppe Conte announced his resignation on Tuesday.


“Conte's resignation won't have a strong impact on the euro in the longer run, as it is only a chapter in the ever-shifting Italian politics,” said Kanda at Gaitame.Com Research.


Sterling traded at $1.2162, holding a bulk of the gains made on Tuesday when it advanced 0.4 per cent.


The pound rose after German Chancellor Angela Merkel said the European Union would think about practical solutions regarding the post-Brexit Irish border.


The Australian dollar was largely flat at $0.6775, after edging up 0.2 per cent on Tuesday.


Source: Reuters

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