The Dollar strengthens before Fed meeting

By Peter Nurse

The dollar has slightly strengthened at the beginning of the european session on Tuesday, bouncing off its lowest level in two years, on the eve of a meeting of the federal Reserve and in the hope of a speedy delivery of the next rescue plan for america’s budget.

Was 10.20 am, the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 93,810, recovering thus from the lowest of 93,448 reached in may 2018.

The USD/JPY rose 0.2% to 105.58, the GBP/USD is down 0.1% at 1.2868.

These small gains before the Fed meeting, which begins later on Tuesday, and the deadline of Friday for the extension of unemployment benefits by the u.s. Congress. These two events are sufficiently unpredictable for traders to seek a temporary refuge in the Dollar.

The republicans announced Monday their latest stimulus plan of 1 000 billion dollars, which does not leave much time to negotiate to see if a compromise between this plan and the proposal of 3 the $ 500 billion that the democrats can be reached before some of the previous measures will expire at the end of the week.

That said, “the bar for any reversal of the decline in the dollar seems to be set pretty high,” said analysts at ING (AS:INGA), in a research note. “After the EU summit has led to increases in the euro and cyclical currencies relative to the u.s. dollar last week, the us dollar is now faced with a mixture of geopolitical tensions and uncertainty about the u.s. economic recovery.”

The publication of the durable goods was better than expected Monday, but the increase in cases of Covid-19 in many us States populous has resulted in a pause in the recovery in employment in the United States. This is a point that the federal Reserve will examine at its meeting in two days.

“We expect the Fed to maintain a dovish, particularly given the recent increase in cases of Covid-19 in the United States and the risk of deterioration of the outlook for the us economy that derives from it,” added ING.

The EUR/USD fell 0.2% to 1,1733.

“We continue to anticipate an increase in the cross-although our forecast of 1M has already been achieved; monitor 1,1815 (over the top of the 18 September)”, said the analysts of the Danske Bank, in a research note.

“In addition to the concerns about u.s. growth, the development of the virus and the tensions with China, the tailwind for the EUR/USD is the result of better news from the euro zone. Yesterday, a decent number of the confidence of German companies in the IFO has strengthened the positive image of the euro zone, the expectations index has far exceeded the consensus”, said Danske Bank.

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