The dollar was little changed versus the yen and euro on Tuesday following a recent wave of selling, taking its cue from calmer oil prices and steadier equity markets. But the US currency remained vulnerable to any surprise from a two-day US central bank meeting ending on Wednesday. The Federal Reserve is widely expected to hike interest rates for the first time in almost a decade.
The dollar was flat at 121.03 yen, having pulled back from a 6-week low of 120.35 on Monday. A week ago the greenback was trading above 123 yen. Cautious traders have since trimmed their dollar positions, awaiting clues on how the Fed might set the pace for additional monetary tightening next year. "Dollar long positions were being liquidated in the market at a faster pace than expected," said Junichi Ishikawa, market strategist at IG Securities in Tokyo.
"It could face additional pressure if US Treasuries are bought back on relief that the Fed's rate hike cycle will be quite a slow one," he said. The Fed has hinted that it intends to hike rates gradually, a stance deemed by many as relatively dovish. "Even if the Fed sends a hawkish message by suggesting it aims to hike actively next year, they are data-dependent," said Shin Kadota, chief FX strategist at Barclays in Tokyo.
"Indicators will have to show the US economy can withstand rate hikes before the dollar can launch into its next phase of appreciation." The euro was little changed at $1.1010, off a 6-week peak of $1.1048 overnight. Elsewhere, the pound struggled on signs the British government may not get is way in talks with European partners before next year's vote on leaving the EU, which added to political anxiety.
The euro fetched 72.61 pence after rising to a 7-week high of 73.01 overnight. Against the dollar, the pound inched up 0.2 percent to $1.5157 after losing about 0.6 percent on Monday. The New Zealand dollar touched a 7-week high of $0.6795, helped by expectations of a rise in milk prices at a dairy auction later in the day. The Australian dollar edged up 0.3 percent to $0.7266. It hit a 3-week low of $0.7160 on Monday, weighed down in part by the Chinese yuan's recent weakness, before rebounding on a slight bounce in prices of commodities such as iron ore.
China's yuan continued to weaken after the central bank set the midpoint at its lowest level in more than four years for the second day. Spot yuan touched a new 4-1/2-year low of 6.4698 per dollar. US crude traded at $36.23 a barrel after brushing a near 7-year trough of $34.53 overnight. Stock bourses in Asia were mostly higher on Tuesday, with MSCI's broadest index of Asia-Pacific shares outside Japan gaining 0.5 percent.
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