The main focus of this coming trading week will be in the US Federal Reserve policy meeting on Wednesday. Currency markets will likely to be subdued ahead of this as investors wait anxiously for more clarity on whether the Fed will taper its stimulus measures soon and by how much.
The FOMC begins the two-day policy meeting on Tuesday, and will announce interest rates and policy on Wednesday, followed by what will be a closely-watched press conference by Fed chairman Ben Bernanke.
The dollar made losses last week on nervousness about Fed intentions, and the US equity markets racked up losses, with the Dow industrials down 178 points or 1.17 per cent on the week.
Earlier this month, Bernanke said that the Fed might pull back on its US$85 billion-a-month bond-buying program, known as quantitative easing, if economic data improves, especially hiring. This propelled the USD to multi-year highs against the yen.
However, markets are unsure when will tapering begin, if it does, and by how much?
Some investors are begin to be concerned that if the Fed slows its stimulus measures it could cause interest rates to rise sharply, affecting many parts of the financial system and the economy.