Dollar clings near seven-week high versus yen; sterling stands tall

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Gold edged up on Tuesday from the previous day's two-week low as the dollar eased ahead of this week's Federal Reserve meeting, which is expected to provide more clues on the pace of USA monetary tightening. It now holds approximately $4.2 trillion in Treasury bonds and mortgage-backed securities dating back to the 2007-09 financial crisis. USA stocks remained flat.

Here is what the policy statement says at first glance.

That means mid-month and end-of-month maturities would be reinvested evenly, based on the monthly cap. Gross domestic product is now expected to grow at a rate of 2.4 percent this year, 2.1 percent next year and 2.0 percent in 2019.

There also was little reaction to the Fed's announcement that it would begin decreasing its balance sheet next month, perhaps confirming its hope that the portfolio runoff would be as exciting as "watching paint dry".

That should shed almost $300 billion in bonds over the first 12 months, and almost $500 billion over the second, according to analysts' projections.

In a long-expected move, the central bank confirmed it will end an unprecedented stimulus program launched at the height of the financial crisis, when the Fed had cut rates to zero and had no ammunition left to help support the economy.

The US dollar jumped against most other major currencies as the Federal Reserve announced start of balance sheet reduction from October. There are several vacancies on the Fed board, and there could be a change in leadership early next year if President Donald Trump decides not to renominate Chair Janet Yellen.

Yellen also said the Fed believes that persistently low inflation - below the Fed's 2 percent target rate for four years - is temporary. But the Fed's goal of normalizing monetary policy after years of "easy money" has been complicated by uneven economic growth. The Fed said it would begin shedding $4.5 trillion in investments next month. The yield on the 10-year Treasury note rose to 2.28 percent. "Normalizing" its balance sheet - that is, putting things more or less back to normal - isn't something the Fed has ever done before either. The job market remains solid, pushing the nation's unemployment rate down to 4.4 percent.

The dollar on Tuesday eased against a basket of currencies, but hovered near an eight-week high against the yen, as US treasury yields continued to climb after signs of firming inflation.

Janwillem Acket, Chief Economist at Julius Baer expects the Fed to be in no hurry to continue normalising interest rates.

Palladium gained 0.7 percent to United States dollars 914.75 an ounce, having dropped to its lowest since mid-August on Tuesday.