Forex – Dollar Slumps as Fed Reportedly Nears End of Balance Unwind; Sterling Up
Investing.com – The U.S dollar suffered a weekly loss after falling sharply against its rivals Friday on expectations the Federal Reserve will turn more dovish at next week’s meeting, while a rally in the pound also weighed.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.86% to 95.47.
The dollar came under pressure following a report from The Wall Street Journal that the Fed is closer than expected to ending its balance sheet unwind.
The Fed previously has been reluctant to elaborate on plans, if any, to end its balance sheet unwinding. But the slump in global markets late last year following the Fed’s decision to raise interest rates has seen the central bank lean more dovish.
In his press conference that followed the Fed’s December meeting, Fed Chairman Jay Powell said the central bank’s balance sheet trimming was on “autopilot.” But he walked back those comments soon after, reassuring investors the Fed would be flexible with all of its policy tools, including the balance sheet.
The report from the Wall Street Journal comes just days before the Federal Reserve meets for the first time this year. The Fed is expected to leave its benchmark rate unchanged, but traders will likely tune into Powell’s press conference for an insight into the central bank’s thinking on monetary policy.
The pound, meanwhile, continued to add to gains against the greenback on expectations that UK Prime Minister Theresa May’s Brexit “Plan B” will fare better than her initial withdrawal deal, which suffered a humiliating defeat in the U.K. Parliament on Jan. 15.
U.K. tabloid The Sun reported Friday that Northern Ireland’s DUP, which props up Theresa May’s government, has privately agree to support May’s Plan B, if it includes a clear time limit to the Irish backstop.
GBP/USD rallied 1.1% to $1.3202.
The euro pared some losses from a day earlier, when European Central Bank President Mario Draghi warned that euro area growth was waning.
EUR/USD rose 0.98% to $1.1415.
USD/JPY rose 0.09% to Y109.53 and USD/CAD was flat at C$1.3217 as the loonie was strengthen by rising oil prices, which limited gains in the pair.