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  • Dollar index stays near multi-month lows on caution ahead of the Fed. 
  • The central bank is expected to keep rates at record lows.
  • Powell may strike an optimistic tone and take note of the recent rise in bond yields. 

Dollar index (DXY), which tracks the value of the greenback against majors, remains on the defensive amid speculation that the Federal Reserve (Fed) could announce new measures to curb the rise in the bond yields. 

At press time, the index is hovering near 96.38, having hit a low of 96.23 during the American trading hours on Tuesday. That was the lowest level since March 12. 

The Fed is widely expected to keep interest rates at record lows on Wednesday and strike an optimistic tone about the economy. After all, Friday’s jobs report seems to have convinced markets that the worst is behind us. Some analysts think the central bank may consider additional measures to cap the recent steepening of the yield curve. 

“A decision to introduce yield caps on maturities out to five- or perhaps even ten-years could be an important next step for risk assets, the dollar and not least, gold,” said Ole Hansen, head of commodity strategy at Saxo Bank, according to Kitco News. 

However, the consensus in the market is that the Fed ould implement yield curve control if the yields continue to rise in the near-term. “Obviously yield-curve control is lurking in the background of the conversation. I certainly do expect that Jay Powell would follow through on controlling the yield curve should the 30-year rate really get unhinged,” Billionaire money manager Jeffrey Gundlach said in a webcast Tuesday, according to Bloomberg. 

The dollar will likely pick up a strong bid if Powell acknowledges that the coronavirus-led slowdown has been less severe than expected. The central bank is expected to publish dismal growth forecasts for the rest of the year. The negative news, however, looks to have been priced in by markets over the past two months. 

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