Dollar Falls Ahead of Fed Decision, Pound Gains

The dollar weakened Tuesday against other major currencies while the British pound advanced as traders looked ahead to this week’s Federal Reserve decision and the Scottish independence vote. The dollar earlier this month hit multi-month highs against the euro and the yen amid expectations that the US central bank was closer to tightening monetary policy than its counterparts in other major economies.

US dollar
Dollar falls ahead of Fed decision, pound gains

But Tuesday’s foreign exchange trade suggested the market has become more cautious about the prospects that the policy-setting Federal Open Market Committee will shift significantly from its easy-money monetary policy. The FOMC is due to release a policy statement around 1800 GMT Wednesday, followed by a news conference with Fed Chair Janet Yellen.

The Fed decision “may spur a bearish reaction in the dollar if the central bank remains reluctant to move away from the zero-interest rate policy,” said David Song, currency analyst at Daily FX. “Even though the Fed is widely expected to conclude its asset-purchase program at the October 29 meeting, we would need a more hawkish twist to the forward-guidance for monetary policy to favor further (dollar) strength.”

Meanwhile, the British pound, which slid last week to multi-month lows as the Scottish independence campaign intensified, appeared to get a lift Tuesday from the latest polling data. Polls by ICM and Opinium both showed the “No” campaign ahead with a four-point lead. The gap is close to the margin of error, but marks an improvement over other polls that have shown an even closer contest or that have said “yes” votes hold a modest lead. (AFP)