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The dollar held steady on Thursday as investors awaited guidance on US monetary policy from Ben Bernanke, president of the Federal Reserve.
Expectations that Mr Bernanke could use a speech in Jackson Hole, Wyoming, to announce a further round of quantitative easing, QE3, in a bid to avoid a recession in the US, have weighed on the dollar in recent weeks.
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The dollar has pared its losses in recent sessions, however, as expectations for a signal of an aggressive stimulus move from Mr Bernanke have been scaled back.
“There seems to be a distinct lack of appetite in FX to break near-term ranges ahead of the Jackson Hole meeting, at which expectations for substantive liquidity measures have been whittled down,” said Sue Trinh at RBC Capital Markets.
Kiran Kowshik at BNP Paribas said given that expectations of additional US policy stimulus had been played down, the bar might now have been set sufficiently low for investors not to come away from Friday’s speech too disappointed.
This, he said, could mean that dollar could weaken as risky assets rose and haven demand for the US currency receded after the meeting.
Mr Kowshik said the reaction of the euro against the dollar after a weaker than expected Ifo survey of German business confidence on Wednesday was telling.
After an initial fall against the dollar, the euro ran into strong bids, ultimately trading higher.
Mr Kowshik said the suspicion in the market was that this demand for the single currency came from official reserve managers, looking to diversify their holdings away from the dollar.
“If so, perhaps these players have already concluded that whether Mr Bernanke delivers [additional easing] on Friday or not, the Fed is ultimately destined to embark on QE3, further debasing the value of their FX reserves,” he said.
On Thursday, the dollar eased 0.1 per cent to $1.4419 against the euro.
Meanwhile, the dollar rose 0.1 per cent to Y77.09 against the yen, was unchanged at $1.6356 against sterling and lost 0.2 per cent to SFr0.7941 against the Swiss franc.
