The USD/TWD currency pair is under pressure and trading below 29.50 during the Asian session. This trend follows a recent dip to a one-month low, even as the US Dollar remains appealing. The Taiwan Dollar is gaining from positive news about easing US-China trade tensions and strong performances from US tech stocks. This situation is putting downward pressure on the USD/TWD pair, which counters the USD’s recent stabilization.

Fed Meeting Outlook

Investors are cautious ahead of the Federal Open Market Committee’s two-day meeting. Any rate cuts by the Fed in September could lead to further losses for the USD/TWD pair. The Federal Reserve directs US monetary policy, adjusting interest rates to respond to the economy. It holds eight meetings a year to make these decisions. The Fed uses quantitative easing to boost credit during downturns and quantitative tightening to restrict it, which generally strengthens the USD. This information carries risks and uncertainties and is for informational use only. Investors should do thorough research before making decisions. The authors are not responsible for any investment results stemming from this information. Despite trading below the 29.50 mark, traders are observing downward movements, even with a slight increase in Dollar demand. Although this seems contradictory, the broader market sentiment around trade relations and tech momentum provides clarity.

Trade Sentiment and Tech Sector Influence

Optimism about easing trade tensions between major economies supports regional currencies, particularly the Taiwan Dollar. Recent gains in prominent US tech stocks also affect currency flow, leading to shifts that don’t reflect short-term Dollar strength. Many expected a stronger Dollar, but underlying market forces are changing quickly. Looking ahead, traders are adjusting to the upcoming Fed discussions. These meeting often cause quick changes in expectations, especially when new policies differ from previous views. Current positioning suggests that traders expect possible rate changes as early as September, depending on upcoming labor data and inflation. While current rates may hold, soft signals from the Fed could lean the bias against the Dollar, especially for this pair. The Federal Reserve employs several key policy tools, the most obvious being the benchmark interest rate. However, its balance sheet actions are also important. When the Fed expands its balance sheet to support liquidity, it often loosens financial conditions, which usually eases upward pressure on the Dollar. Reducing the balance sheet generally tightens capital in the system, strengthening the Dollar. Right now, it looks like markets are anticipating a more dovish stance from the Fed, driven by external positivity rather than internal weakness. If the upcoming statements reflect a softer tone, this bias could deepen, especially if inflation numbers stay stable. This would indicate a gradual return to normal policy. It’s crucial to monitor not just formal policy decisions but also the tone of recent Fed speeches. Any indications of patience or a focus on data could weigh more heavily than forecasts imply. Therefore, adjustments should consider changes in timing for future rate decisions. Additionally, volatility in the derivatives market may start to reveal a more asymmetric risk profile if these trends continue influencing rate expectations. These evolving factors are already being priced in, meaning current levels may not fully capture anticipated outcomes. Staying flexible with positions, especially in shorter-term instruments, could be more beneficial than relying solely on Dollar sentiment. Create your live VT Markets account and start trading now.

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