SINGAPORE (REUTERS) – The US dollar hovered just above a two-year low on Wednesday (July 29), while stocks struggled, as growing worries about the US economy had investors cautious and looking to Congress and the Federal Reserve for a boost.
The Fed is expected to strike a dovish stance at its policy review later in the day and perhaps open the door to a higher tolerance for inflation – something dollar bears think could squash real yields and sink the currency even further.
A US$1 trillion (S$1.38 billion) fiscal rescue package in the United States is also at an impasse as a Friday deadline to extend unemployment benefits looms.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent as gains in China offset small losses elsewhere. Japan’s Nikkei was down 0.8 per cent on a rising yen and weak start to corporate earnings season.
Hong Kong’s Hang Seng rose 0.4 per cent while the Shanghai Composite climbed 1.5 per cent.
South Korea’s Kospi index rose 0.2 per cent and Australia’s S&P/ASX 200 Index fell 0.3 per cent
Singapore’s Straits Times Index was dflat at 11:20am local time.
Against a basket of currencies the dollar wallowed just 0.3 per cent above a two-year low hit a day ago. It has lost 3.7 per cent in July so far and is headed for its worst month in nine years.
Gold steadied around US$1,960 an ounce, pulling back from a US$1,980 high on Tuesday but still having gained nearly US$150 in eight sessions. S&P 500 futures were flat.
The Fed’s forward guidance probably determines the next move and the extension of several emergency lending facilities on Tuesday fuelled anticipation of a particularly dovish tone.
“Some pockets of the market are looking for the forward guidance to be a bit bolder in a dovish direction,” said Imre Speizer, currency analyst at Westpac in Auckland. “If we don’t get that, you may well get a small rebound in the dollar.”
The Fed publishes its interest rate decision, which is not expected to change, at 1800 GMT and Chair Jerome Powell holds a press conference half an hour later.
The bond market was also in a cautious mood ahead of the meeting, having retraced a selloff on Tuesday to leave benchmark US 10-year yields at 0.5823 per cent.
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Besides the Fed, the other focus is on political wrangling over the next US fiscal package, which weighed on Wall Street overnight where the S&P 500 fell 0.6 per cent.
Republicans’ US$1 trillion proposal includes cutting a weekly US$600 unemployment benefit, which expires on Friday, to US$200 just as cracks emerge in the economic rebound.
US consumer confidence fell by more than expected this month, as COVID-19 infections flared.
The Democrats are pressing for a larger spending commitment, while President Donald Trump also said he didn’t like elements of the Republican plan, adding to the sense of confusion.
“This is a big deal – there’s 30 million people unemployed and so much of US GDP is consumer spending,” said Chris Brankin,…