While geopolitical tensions escalated after the US President used stronger language against North Korea at his first speech in front of global leaders at the UN on Tuesday, the dollar showed relatively little reaction slipping near its two-year lows. Markets instead were more cautious about the FOMC decision to be announced later today, while they were also looking forward to the BOJ policy meeting scheduled for Thursday. Meanwhile, oil prices headed higher after OPEC member Iraq said it would take further action to limit its supply.
The dollar index was 0.10% down on the day at 91.70, showing a moderate reaction to Trump’s debut speech at the UN General Assembly yesterday. Trump commenting on North Korea’s nuclear programs warned to “totally destroy” the regime if it continued threatening the US or its allies.
Despite the fact that Trump’s words heightened uncertainties over US-North Korea relations, the market reaction was less severe compared to previous instances, as investors were focused to hear the outcome of the two-day FOMC meeting concluding later today. Investors expect the Fed to hold rates steady and announce the reduction of its approximately $4.2 trillion balance sheet starting in October, while they are also eager to hear the Fed’s rate projections. The policy statement will be released at 1800GMT before Fed Chair Janet Yellen holds a press conference half an hour later.
Dollar/yen weakened to 111.42 after approaching a two-month high of 111.82 on Tuesday. A factor contributing to the yen’s strength was the lead of the Japanese Prime Minister, Shinzo Abe, in recent polls after reports that Abe will call a snap election as soon as next month. Market watchers will also keep a close eye on the BOJ policy meeting tomorrow, where they forecast policymakers to maintain their ultra-easy monetary strategy as inflation remains subdued.
In terms of data, Japanese exports increased unexpectedly by 18.1%, reaching the fastest growth since November 2013, while analysts projected exports to rise by 14.7%.
The euro continued its uptrend for the fifth day, rising to $1.2002 before the Asian close.
In other currencies, the aussie was trading 0.40% higher on Wednesday near a 1 ½ -week high at 0.8037, finding support on increasing government bond yields which rose to the highest level since late 2015. Meanwhile, the RBA’s head of economics, Luci Ellis, said on Wednesday that the central bank is “comfortable” with the inflation path and the period needed for it to approach the target, adding that wages and inflation will remain low for some time as there is still room for employment to improve.
Its New Zealand cousin hit a one month-high of $0.7373 after the current account readings out of the country came in better than expected in the second quarter. The dairy price auction conducted the previous day also helped the kiwi.
Regarding oil prices, WTI crude jumped by almost 1% to $49.97 per barrel while London-based Brent surged by 0.51% to $55.42 after Iraq’s energy minister, Jabar al-Luaibi, said on Tuesday at an energy conference in the United Arab Emirates that OPEC members. as well as other oil producers, are considering the option to extend or widen supply cuts a day after the API weekly report indicated a smaller than expected rise in US inventories.
Gold climbed by 0.10% to $1,312.71 per ounce.