Dollar Could Snap Back Into Life as Fed Likely to Renew Recession Fears

© Reuters.  © Reuters.

By Yasin Ebrahim – The dollar has made a timid start to the week, but with the Federal Reserve set to kick off its two-day meeting Tuesday some on Wall Street are backing the greenback to find its footing and mount a rally.

The Federal Reserve’s update on the economy due Wednesday will likely lay bare the underlying economic weakness and shift investor focus to the looming recession, sparking a bid in the safe-haven dollar, Bank of America (NYSE:) said.

“The Fed will recognize deterioration in economic conditions and likely signal that rates will remain low for an extended period,” BofA said. “A sobering assessment of economic activity by the Fed, as well as by other global central banks this week, could well begin to shift the prevailing focus away from policy stimulus and back to the reality of global recession.”

Alongside its monetary policy statement, the Fed will release its summary of economic projections on a range of measures including growth, employment, inflation and interest rate projections.

The forecasts will likely provide key insights into how deep and dark a widely expected recession will be and also the extent to which the Fed is willing to keep its ultraloose monetary policy in action.

The two-day Fed meeting is expected to culminate with an unchanged rate decision on Wednesday and comes as economic activity continues to deteriorate with consumer confidence last month plunging to multi-year lows.

Sentiment on the dollar has swung negative in recent weeks, with investors upping their bearish bets on the greenback following the Fed’s inventions in the market, including expanding access to dollars to avert a funding crisis.

Also supporting the dollar’s move off its session lows, and moved off session highs to trade about 0.4% and 0.1% higher respectively, ahead of monetary policy decision from the Bank of England and European Central Bank expected in the coming days.

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