The U.S. Dollar remained close to Tuesday’s 4-week trough now that expectations that the Fed would tighten monetary policy at a faster click have been dashed with the withdrawal from contention of Lawrence Summers. It is becoming more likely that Ben Bernanke’s successor as the Federal Reserve head will be his colleague Janet Yellen who is seen by many investors as one he will take a more cautious approach. While a decision has yet to be made, markets will turn their focus to the upcoming Fed’s policy meeting. In the interim, disappointing data from the U.S. has put some pressure on the greenback and prompted market players to raise their expectations of a modest reduction in the Fed’s current asset-buying scheme.
At one point in the Asian session the U.S. Dollar Index fell to a low of 80.968 .DXY, a level not seen in several weeks, but later recovered to 81.27 .DXY. The EUR/USD pair traded at a session peak of $1.3385 and was last trading at $1.3335, while the USD/JPY pair held at 99.17, recovering from Monday’s low of 98.45 Yen. Analysts see firm support at around the 98.40 Yen level and don’t believe that the greenback could see any sharp declines below that.
Consumer Inflation Data Eyed
U.S. consumer inflation data is expected to be released later today which will help determine the greenback’s direction and could influence market sentiment on Fed policy as well. A poll of economists sees core CPI edging higher to 1.8% in August from 1.7% but still below the Fed’s threshold.