Dollar edges higher with the Fed and trade worries back in focus

The U.S. dollar found some support on Wednesday ahead of the Federal Reserve’s policy update, while concerns about a trade war between the U.S. and China flared up again on Wednesday.

The ICE U.S. Dollar Index DXY, +0.09%  0.2% stronger at 94.677, while the broader WSJ Dollar Index BUXX, +0.13%  was up 0.1% at 88.42.

Fed policy makers are due to release a policy statement at the conclusion of their two-day meeting at 2 p.m. Eastern. No change in interest rates is expected, but market participants are looking for any changes in the central bank’s economic assessment.

“Today’s Fed statement isn’t expected to differ too much from the previous one, with any changes likely to be minor in nature in terms of possible changing inflation expectations along with any new references to risks about rising trade tensions,” wrote Michael Hewson, chief market analyst at CMC Markets in a note.

The Bank of England’s policy meeting on Thursday, concludes this week’s major central bank action.

Trade negotiations to avoid a fully fledged trade war between the U.S. and China were back in focus after advisers to President Donald Trump urged him late Tuesday to up tariffs on some $200 billion of Chinese imports to 25% from an initially proposed 10%. A final decision on this won’t be made until late August, leaving a window for negotiations between the two countries.

The Australian dollar-Japanese yen pair AUDJPY, -0.65% an expression of risk in this scenario as Japan is considered a haven currency and Australia’s commodity-driven economy is highly reliant on Chinese demand, weakened in response late Tuesday. On Wednesday, the Aussie was down 0.4% versus its Japanese counterpart, and last bought ¥82.77.

Meanwhile, the People’s Bank of China changed its reference rate for the U.S. dollar versus the yuan USDCNY, +0.2863%  at the highest rates since May 2017.

“Although the value of dollar-yuan is still below the late 2016 high of 6.9646, concerns the yuan could weaken further will underpin fears about the competitiveness of other regional economies and commodities exporters,” said Rabobank strategists in a note.

One dollar last bought 6.8205 yuan in Beijing, up 0.1%, and 6.8306 in the offshore market USDCNH, +0.4085% up 0.4%.

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