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The dollar index fell 0.2% on Wednesday, ahead of the outcome of a Federal Reserve policy meeting. 
Analyst Jeffrey Halley said the weakness in the dollar reflected the expectation that the Fed’s policy-setting committee “will be extremely dovish even if they upgrade their GDP forecasts.”
Gold rose 1% on a weekly basis helped by the fall in the dollar.
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The US dollar fell on Wednesday, while gold rose and Treasury yields held steady, ahead of the Federal Reserve’s meeting, which analysts said would likely show policymakers remain committed to ultra-low interest rates. 

The dollar index, which tracks the strength of the dollar against a basket of major currencies, is down 0.3% at 92.83 as of 8:03 am. ET. 

The Federal Open Market Committee, which sets monetary policy, is widely expected to maintain a dovish stance on the outlook for the economy, meaning more weakness may lay in store for the dollar. 

“FOMC will be extremely dovish even if they upgrade their GDP forecasts,” Jeffrey Halley, senior market analyst at OANDA, said. 

Low US interest rates make the dollar less attractive to overseas investors who may be able to pick up higher returns by holding other higher-yielding currencies.

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At the Fed’s annual Jackson Hole symposium last month, the central bank unveiled a major change in policy, by saying it would now target an inflation rate that averages 2% over time, a decision investors have interpreted as its willingness to tolerate an increase in consumer prices. Previously, the Fed’s target was that of maintaining inflation at 2%. 

US consumer inflation is currently running at 1.3%.

Market watchers do not expect any rises in the Fed’s benchmark interest rate, currently at 0.25%, for months to come, but are still waiting for the meeting to conclude to see if the central bank issues any surprise economic projections. 

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Gold rose 0.6% to $1,966.80 per ounce as of 06:19 am. ET. Gold prices are also up 1.2% higher on a weekly basis. Gold has lost about 5% since touching an all-time high in early August, but prolonged Fed dovishness may continue to support prices. 

A lower interest rate makes it cheaper for investors to hold gold, which doesn’t provide any return, meaning they have to give up relatively less to hold the precious metal. 

Naeem Aslam, chief market analyst at Avatrade, said any surprises from the Fed could have a significant impact across all major markets.

“If there is a surprise from the Fed, we are likely to see a lot of chaos in the US equity markets, more bullish bets for the yellow metal, as investors may think that the Fed is getting ahead of itself,” he said. 

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Stephen Innes, chief …read more

Source:: Business Insider


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