The dollar declined as Federal Reserve meeting nears

The U.S. dollar dropped in early European trade on Tuesday. The currency declined from a month high, ahead of the start of this week’s important Federal Reserve meeting on Tuesday. Meanwhile, the safe-haven Japanese yuan was under pressure over China Evergrande Group’s debt woes.

The dollar index, which tracks the dollar versus its rivals, fell by 0.1% to settle at 93.130. Notably, the index surged to a high of 93.455 for the first time since August 23.

The dollar against the Japanese yen increased by 0.2% to 109.57. The euro surged 0.1% against the greenback 1.1736, while the British pound against the dollar surged 0.2% to 1.3680. The risk-sensitive currency, the Australian dollar, surged 0.4% against the U.S. currency to settle at 0.7277, recovering from a three-week low.

As we know, the Federal Reserve starts its two-day policy meeting later on Tuesday. Remarkably, analysts say that trading ranges are expected to be limited ahead of Wednesday’s press conference. The market is waiting for the central bank to provide more information about the timing of its asset tapering.

Furthermore, the dollar against the Chinese yuan traded flat at 6.4662 after declining to 6.4879 on Septeber 20 for the first time since August 23.

A currency market volatility gauge soared to its highest levels since end-July

Furthermore, the New Zealand dollar against the dollar gained 0.1% to settle at 0.7028. Christian Hawkesby, Reserve Bank of New Zealand (RBNZ) assistant governor, announced that the central bank move in 25 basis point increments, while 50 basis points hike was anticipated.

Despite efforts by China Evergrande Group’s chairman to lift confidence in the embattled property company, default concerns continued to stalk. Remarkably, financial markets watched for possible intervention by China to stem any domino effects across the global economy.

Charalambos Pissouros, head of research at JFD Group, announced that with no signs of a possible solution, they see the case for the default risks to resume rising and keep adding pressure to the broader risk appetite

As markets stabilized after September 20’s selloff, investors remained broadly cautious. Moreover, a currency market volatility gauge soared to its highest levels since end-July.

In cryptocurrencies, Bitcoin continued to struggle amid the souring in risk sentiment. The dominant cryptocurrency, Bitcoin, was broadly steady at about $43,000 on Tuesday after earlier hitting $40,192.90 for the first time since August 6.

The second-largest cryptocurrency, Ethereum, recovered 2.8% to settle at $3,060 after declining to $2.803.20, also for the first time since August 6.