Fed extends lending programs as pandemic’s impact lengthens

The Federal Reserve is unlikely to change course dramatically when its rate-setting Federal Open Market Committee meets

The Federal Reserve is unlikely to change course dramatically when its rate-setting Federal Open Market Committee meets

The ICE U.S. Dollar Index, which measures the U.S. dollar against a basket of currencies, fell Monday, on pace for its worst month in almost a decade.

Investors will be watching to see if the Fed indicates that it will increase its purchases of longer-dated debt and whether yield caps are likely going forward when it concludes its two-day meeting on Wednesday.

The U.S. dollar fell as investors bet that the Federal Reserve will continue to keep the spigot turned on for cheap money and backstop the U.S. economy. Market players are awaiting the outcome of a U.S. Federal Reserve policy meeting that began Tuesday. The advance extends a summer surge for the precious metal, which has benefited from uncertainty about the outlook for the global economy, a broad decline in interest rates, and the weakening dollar.

Ultra-loose Fed policy is also weighing on the US currency, with the central bank signaling that it will keep rates near zero for years to come.

The euro dipped 0.18% against the dollar to $1.1730, after reaching $1.1781 on Monday, the highest since September 2018.

Real yields, which reflect the value of bond yields after adjusting for inflation expectations, have plunged around the world as central banks slashed interest rates and unleashed stimulus to address the economic hit from the coronavirus pandemic. For instance, since mid-June, U.S. benchmark 10-year yields have fallen more than 20 basis points, while the S&P 500 has gained roughly 5%.

"Global stock markets appear to be starting to get a little wobbly as the latest earnings numbers start to paint a picture of a global economy that could start to face a challenging time in the weeks and months ahead", wrote Michael Hewson, chief market analyst at CMC Markets UK.

Republicans' US$1 trillion proposal includes cutting a weekly US$600 unemployment benefit, which expires on Friday, to US$200 just as cracks emerge in the economic rebound.

The Australian dollar traded at $0.7170, near its 15-month peak of $0.7184 touched a week ago, stepping back slightly after data showed Australia's consumer prices fell by a record in the second quarter. The figures are due to be released at 8:30 a.m. ET.

Shares of Moderna rose $6.70, or 9.2%, to $79.91 after the company said it had received additional funding from the federal government's effort to accelerate development of a vaccine for Covid-19. The number of infections climbed over the weekend to surpass 16 million globally, and American officials urged residents to comply with orders made to slow the virus's spread.

Overseas, stocks were mixed.

Brent crude futures LCOc1 were last up 0.1% at $43.28 per barrel and US crude was flat at $41.01 a barrel. Stocks saw modest gains in Hong Kong and South Korea, and outperformed in China on low volumes.

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