The dollar index was little changed on Tuesday, with EUR/USD largely steady while the U.S. currency regained some ground lost recently to the yen and aussie as markets repositioned ahead of Fed's policy statement and news conference in the following session.
The Fed is seen avoiding any commitment about when to begin public discussion of rolling back stimulus, despite a spate of forecast-beating U.S. economic data, including Tuesday's April Conference Board consumer confidence nAQN043CAK, which lifted Treasury yields and helped the dollar hold firm.
EUR/USD kept above 100-day moving average support at 1.2055 after Monday's April peak ran into resistance from the down trend-line across January and February highs nL1N2MK1CL.
Though euro zone data has improved recently, its slower path out of the pandemic puts the Fed closer to broaching the normalization subject than the ECB.
Eurodollar futures are fully pricing in a 25bp Fed hike by the end of next year.
Like EUR/USD, the dollar index's recovery attempts this week stalled by the 100-day moving average nL1N2MK1CL, despite Treasury yields spreads over Bunds and JGB yields starting to recover.
Among the key reserve currencies, the yen fared the worst and sterling the best, with USD/JPY up 0.5%, EUR/JPY 0.45% and GBP/JPY up 0.63%, with the pound boosted by stellar CBI retailer data nL8N2MK3C7 and only fleeting weakness on political angst nL1N2MK189.
Sterling rose 0.08%, finding buyers above the daily cloud base and kijun line.
Fed and BOE rate hiking expectations have converged around late 2022.
USD/JPY extended its rebound above April's down trend-line from last week's oversold lows and failed key support breaks.
The BOJ acknowledged it couldn't reach its 2% inflation target before Governor Haruhiko Kuroda retires in 2023.
The market sees rates remaining near zero across the policy horizon, making the yen a prime funding currency for carry trades.
It also leaves Treasury yields and the Fed to drive key Treasury-JGB yields spreads USD/JPY tracks.
The strong consumer confidence pushed USD/JPY toward key resistance at 109.
USD/JPY fell from mid-April to Friday's trough despite 10-year Treasury-JGB yield spreads recovering from mid-month correction lows nL1N2MK1MI.
A close above 109 after the FOMC and key U.S. data Thursday would shift the focus to reaching 110.
Aussie and most high-beta currencies lost ground.
Bitcoin extended recent gains and ethereum hit a record high helped by wider financial market adoption nL8N2MJ4Q7 and technical issues nL1N2MJ247.
The FOMC is Wednesday's main event, with investors likely to listen intently for any indication of a timeline for tapering discussions.
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