PrintFOREX-Dollar gets safe-haven tailwind ahead of Fed decision?
BY Reuters | ECONOMIC | 07:09 AM EDT* Fed expected to hold rates, focus on Powell's future and war's economic impact
* Oil prices rise, boosting dollar demand as safe haven
* Yen steady near intervention levels, BOJ signals gradual rate hikes if conditions allow (Updates prices in paragraph 3, adds comment 13, 15-16)
By Rae Wee and Amanda Cooper
SINGAPORE/LONDON, April 29 (Reuters) - The dollar rose on Wednesday as investors awaited a closely watched Federal Reserve rate decision - likely to be Chair Jerome Powell's last - against a backdrop of an Iran war that shows little sign of imminent resolution.
Activity was tempered by markets in Japan closing for a
public holiday and by caution ahead of a string of major central
bank decisions over the coming 48 hours, along with the likes of
Amazon
Against the dollar, the euro dipped 0.1% to $1.1701 while sterling was also down 0.1% at $1.3509.
The Fed is widely expected to keep rates on hold, leaving the focus on policymakers' assessment of the war's impact on the economy and on Powell's future.
"The question is what Powell is going to do, because he still holds the governor seat until 2028 - so whether he chooses to resign after the expiry of the Chair term or if he stays on as a governor and as sort of a shadow Chair," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
In geopolitics, efforts to end the Iran war were at an impasse. U.S. President Donald Trump said he was unhappy with the latest proposal from Tehran because he wants nuclear issues dealt with from the outset.
Oil rose for an eighth straight day, the longest such stretch since May 2022, in the aftermath of Russia's invasion of Ukraine. The June contract that expires on Wednesday was up another 1% at $112 a barrel, while the most-active July was at $105, which dampened confidence and fed some demand for the dollar in its capacity as a safe-haven currency.
"Crude oil is again trading back above the $110-a-barrel level with potential economic consequences over the summer period becoming more severe," MUFG head of research for global markets EMEA Derek Halpenny said.
"Europe and Asia will be more severely hit and if this drags on there will be increased downside pressure on the euro and Asian currencies," he added.
TRADERS ON YEN INTERVENTION WATCH
The yen hovered just below 160 per dollar despite the Bank of Japan hinting after its policy meeting on Tuesday at a strong chance of a rate hike in coming months.
The yen has lost 0.6% in value against the dollar and over 2% since the war started, partly due to Japan's exposure to imported energy inflation.
"The story for the yen is one in which the downside is capped because we're near to intervention levels, but it's very difficult to get excited about the upside," Sim Moh Siong, a strategist at OCBC, said.
Weekly data shows investors have the largest bearish position in the yen since late July 2024, not long after the last round of intervention. Traders see 160 as a possible catalyst for potential intervention from Japanese authorities to shore up the currency.
Sam Lynton-Brown, a currency strategist at BNP Paribas, who is bearish towards the dollar this year, said his forecast was for the dollar/yen pair to finish 2026 at 160.
"That's quite idiosyncratically bearish on the yen. So we're calling for a de-correlation between the yen and other G10 currencies - other G10 currencies are generally going to strengthen against the dollar, while the yen is going to weaken," he said at a virtual presentation of the bank's 2026 global outlook on Wednesday. (Additional reporting by Rae Wee in Singapore; Editing by Sam Holmes, Kate Mayberry and Aidan Lewis)
