Dollar steady as Fed meeting looms; bitcoin pops above $40,000

The dollar barely moved against a basket of major currencies on Monday as traders waited for a highly anticipated Fed meeting later this week that could signal a change in the US monetary policy outlook.

Currency markets settled in tight ranges, with implied volatility falling to multi-year lows after strong inflation data last week and a dovish meeting of the European Central Bank failed to push currencies off recent trading levels.

“This week is all about the FOMC and we will be watching closely how much tapering talks are really going on and whether that has any impact on the medium-term outlook,” said Brad Bechtel, global head of FX at Jefferies, said in one Note.

The dollar index, which measures the greenback against a basket of six currencies, was roughly unchanged that day at 90.512. Last week the index rose 0.4%, the largest weekly change in five weeks.

Subdued FX movements in recent weeks have destroyed the Deutsche Bank FX Volatility Index (.DBCVIX) down to 5.6 on Friday, its lowest level in nearly 16 months.

Against the yen, the dollar rose 0.38% to a more than a week-long high of 110.09 yen.

“A modest rise in government bond yields has helped the rate-sensitive pair,” said Ronald Simpson, managing director, global currency analysis, Action Economics.

The dollar’s strength against the Japanese currency could be a sign that the forex market is expecting a less dovish outcome from the Fed meeting, Simpson said.

The Fed begins a scheduled two-day monetary policy meeting on Tuesday. Nearly 60% of economists said in a Reuters poll that despite a patchy rebound in the labor market, a highly anticipated cut announcement will come in the next quarter. Continue reading

Recent data suggesting a spike in inflation has raised concerns that post-COVID-19 economic reopening price pressures could force policymakers to curb currency-depreciating incentives earlier.

Sterling appeared largely unaffected by Monday’s news that the UK will delay the end of social distancing measures as the government tries to contain a rapid surge in COVID-19 infections.

In cryptocurrencies, Bitcoin traded above $ 40,000 for the first time in more than two weeks before the gains were paired to trade at $ 39,649.03. Continue reading

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