Fed uncertainty fuels cautious dollar trades

LONDON: The dollar stabilised near multi-week highs on Tuesday as traders turned cautious ahead of the Federal Reserve's two-day policy meeting which could provide hints of any plans to start tapering its bond purchases.

So far Fed officials, led by Chair Jerome Powell, have stressed that rising inflationary pressures are transitory and ultra-easy monetary settings will stay in place for some time to come but recent economic data has raised concerns that price pressure could force an earlier stimulus withdrawal.

"That is exactly what makes tomorrow's Fed meeting so interesting: market participants simply cannot be certain which aspect will weigh more heavily on the Fed's mind", Commerzbank analyst Esther Reichelt wrote in a note to her clients.

Nearly 60% of economists in a Reuters poll expect a tapering announcement in the next quarter.

Investors are hoping that US retail sales and a manufacturing survey later on Tuesday will give clues as to what to expect from the Fed's statement and news conference on Wednesday.

In the meantime though, prudence is palpable across trading floors.

"No USD trader will want to take too clear a position ahead of Wednesday's meeting as uncertainties are simply too high", Reichelt said.

The dollar index edged lower in the Asian session and at 0716 GMT, was down 0.1% at 90.40, hovering near multi-week highs.

Yields on benchmark 10-year US Treasuries were at 1.48%, well below the 1.60% level they were trading at toward the beginning of June.

The euro rose 0.15% to $1.2126, just above a one-month low of $1.2093 it hit last week while the yen hit a seven-session low of 110.02 per dollar.

The Australian dollar slipped to $0.7705 after minutes from the Reserve Bank of Australia's last meeting showed the bank was prepared to keep buying bonds even though the economy has recovered its pre-pandemic output.

The impact of Britain and Australia announcing a trade deal was still unclear but is expected to benefit Australian farmers.

Sterling was little changed against the dollar at $1.4118.

In cryptocurrencies, bitcoin was able to steady above $40,000 on Tuesday and is approaching its 200-day moving average - finding support from the promise of fresh investment from major backer MicroStrategy and from Elon Musk.

Tesla boss Musk on Sunday flagged that the carmaker could resume transactions using the token if miners can use cleaner energy to process them.

Ether also got a small lift from its bigger rival, and broke above its 20-day moving average to $2,612.