SYDNEY: All the major currencies marked time in Asia on Wednesday as investors waited anxiously to see if the Federal Reserve could clarify the outlook for policy without sending markets into a fresh frenzy
Last-minute position adjusting before the outcome of the Fed's two-day meeting had seen the US dollar nudge up on the yen but lose ground to both the euro and Swiss franc.
Especially jittery were emerging market currencies, from Asia to South Africa to Brazil, as they have the most to lose should the Fed even hint at a slowdown in stimulus.
The dollar was a shade firmer at 95.55 yen thanks to Japanese demand, but under pressure against the euro at $1.3393 after the single currency touched a four-month high.
Against a basket of currencies, the dollar was a fraction higher at 80.705 but still uncomfortably close to recent four-month lows of 80.500.
In what could well be a turning point for global markets, Fed Chairman Ben Bernanke has the chance to address speculation that the central bank will start tapering its asset buying before the year is out.
Unfortunately nobody is sure what position he will take, or how markets will choose to interpret his stance. The Fed's policy statement is due at 1800 GMT with Bernanke's news conference half an hour later.
Many analysts suspect Bernanke will try to emphasise that tapering is not tightening and an actual rise in the funds rate is still a distant prospect, perhaps not until 2015.
However, investors have a habit of pricing in everything, right away and seem to have concluded that an end to super-cheap money is inevitable and are positioning for that.
"Markets will likely continue to view any move to withdraw policy as the first step of many and, as a result, volatility is likely to remain elevated as the market balances incoming data with Fed communications about its policy stance," said Barclays analyst Michael Gapen in a note.
One result has been the sharp rise in longer-dated US Treasury yields over the past six weeks. Over time this is expected to act as a support for the US dollar, though in the near term heavy foreign selling of Treasuries has blunted the impact.
Indeed, it could be one reason the US dollar has declined against both the euro and the Swiss franc in the past few weeks.
Another trend in the making is a rotation out of commodities and emerging markets and toward developed nation assets. Investing in emerging markets has been an extremely crowded trade in recent years so the pullback in positions has resulted in steep falls in emerging market bonds, shares and currencies.
Outside of the yen and the yuan, most currencies in Asia have been under heavy pressure, even forcing Indonesia to hike interest rates in a shock move last week.
Also in the crosshairs is the Australian dollar, not only as a commodity currency but also as a liquid proxy for emerging Asian markets. Shorting the Aussie against the euro has been particularly popular, with the single currency climbing 15 percent since early April.
The euro was up at A$1.4109 on Wednesday, having gained 0.8 percent overnight to near a 22-month high of A$1.4237 hit last week. Next stop is the A$1.4340 peak from March 2011.
Against its US counterpart, the Aussie was hovering at $0.9465 having been as low as $0.9440 offshore.
The Aussie has shed 10 percent on the dollar since April, a move welcomed by the Reserve Bank of Australia (RBA) as a stimulus to the country's export sector.
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