Dollar slips ahead of Fed, yen firms

TOKYO The dollar slipped ahead of the U.S. Federal Reserve’s two-day policy meeting that begins later on Tuesday, while the yen gained on hopes that the Bank of Japan will ease later this week.

The U.S. central bank is widely expected to stand pat on policy, but investors were bracing for any possible signals from the Fed about a tightening later this year.

Fed fund futures on Monday indicated that the market sees nearly no chance of a rate hike this week, but the chances of a December hike rose to 56 percent, up from 48 percent on Friday.

The dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent to 97.228 .DXY, below the previous session’s high of 97.569, its loftiest peak since March.

The dollar slipped 0.5 percent against the yen to 105.23 JPY=, while the euro shed 0.5 percent to 115.66 yen EURJPY=.

Most economists surveyed by Reuters expect the BOJ to take some form of easing steps at its two-day meeting that ends on Friday.

The Japanese government is also putting together a massive spending package worth about 20 trillion yen ($189 billion), government sources told Reuters last week, though actual public spending will be far less than the headline number suggests.

A Nikkei report on Tuesday said Japan is likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years.

“For the yen, what matters most in our opinion is the ‘mamizu’ or real water content of the fiscal package – more so than the headline total which is easily inflated,” said Ray Attrill, global co-head of FX strategy at National Australia Bank. “The bigger this is, the more stock market supportive it will be and negative for the yen.”

While the news had no direct market impact, sentiment was also subdued after 19 people were feared dead and 45 injured in an attack by a knife-wielding man at a facility for the disabled outside of Tokyo. Such mass killings are extremely rare in Japan.

The Australian dollar was steady at $0.7468 AUD=D4 as investors awaited inflation data on Wednesday which many believe will send a signal on whether interest rates will be cut as early as next month.

Underlying inflation is expected to fall to a record low of 1.4 percent, a Reuters poll showed, which is seen prompting the Reserve Bank of Australia to trim its cash rate.

(Reporting by Lisa Twaronite; Editing by Richard Pullin)

Source: Reuters

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