Dollar falls as traders await possible move on Fed bond purchases

Key Points
  • Euro falls briefly on Reuters report on ECB bond program
  • Trump's U.N. speech grabs attention but non-market event
  • Yen slips to 8-week low vs. dollar, 21-month low against euro
  • Swiss franc hits lowest vs. euro since Jan. 2015
Matt Cardy | Getty Images

The dollar weakened against a basket of currencies on Tuesday in advance of a Federal Reserve meeting where policymakers are expected to decide on the reduction of the central bank's $4.2 trillion worth of bond holdings.

The Fed's possible move to further roll back stimulus has not stemmed the greenback's weakness this year as other major central banks are considering steps to either slow their bond purchases or raise interest rates.

Analysts widely anticipate Fed policymakers to announce a lowering of monthly bond purchases starting in October when their two-day meeting ends on Wednesday. They expect Fed officials would leave the door open for a rate increase at their Dec. 12-13 meeting.

"It's just a restless market before the Fed," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The index that tracks the dollar against six currencies was down 0.27 percent at 91.80, which was not far from the over 2-½ year low of 91.011 set on Sept. 8.

Fed hike around the corner?

"The biggest risk for the dollar is that if they cast doubt on a December rate hike," Manimbo said.

The futures market implied traders saw a 58 percent chance of a rate increase at year-end, CME Group's FedWatch showed.

The dollar had weakened against the yen ahead of U.S. President Donald Trump's speech before the United Nations General Assembly, which some traders feared would heighten tensions between Washington and North Korea over the latter's growing nuclear weapons program.

While Trump dealt harsh criticism against the North Korean regime, it was not enough to spook most investors. The drifted 0.05 percent lower at 111.50 yen , below its eight-week peak of 111.87 set earlier Tuesday.

Meanwhile, traders have been speculating whether the European Central Bank is moving closer to wind down its 2.3 trillion euro asset purchase program. ECB policymakers disagree whether to determine a fixed date to end the program when they meet in October, as the euro has jumped, Reuters reported.

Forget rate hikes, the Fed balance sheet is the big story: Pro

The single currency fell briefly on the Reuters report. Earlier Tuesday, the hit a 21-month trough versus the euro at 134.15 yen, while the Swiss franc hit 1.1563 franc, its lowest level against it since January 2015. The common currency reached a one-week high versus the greenback at $1.2005. It was last at $1.994.