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Dollar Off Lows, but Fed Meeting Keeps Leash on Bulls

Published 15/09/2020, 19:29
Updated 15/09/2020, 19:32
© Reuters.

© Reuters.

By Yasin Ebrahim

Investing.com – The dollar moved off session lows Tuesday, but traders appeared wary of biding up the greenback as the Federal Reserve is expected to reiterate its commitment to keep rates low for longer to ensure the economic recovery continues.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.07%, to 93.13, after falling to a session low of 92.79.

The Federal Open Market Committee is set to kick off its two-day meeting on Tuesday, which is expected to culminate in a decision to keep interest rates in a 0-to-0.25% range.

"We expect only cosmetic changes to the statement and a dovish dot plot. We do not expect any major surprises on either forward guidance or QE and anticipate only cosmetic statement changes to reflect the new inflation framework announced at Jackson Hole," Morgan Stanley (NYSE:MS) said in a note.

The policy statement will also be accompanied by an update on the central bank's economic projections that will likely back the Fed's ongoing outlook for a protracted economic recovery.

"Changes to the SEP are likely to be more significant in the near term, but the projections over the median term are likely to further underscore that the median FOMC participant foresees a lengthy recovery and prolonged period with the federal funds rate in the current target range," Morgan Stanley added.

The sluggish move in the dollar comes as its rebound in September has done little to persuade traders to drop their bearish bets on the dollar.

"The Fed’s latest policy shift has fueled expectations that rates will stay lower for longer, and is therefore offering – and will likely continue to offer in the foreseeable future – a reason to stick to USD shorts and hold a sell-the-rally approach on any USD signs of reprise," ING said in a note.

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