FOREX-Dollar heads towards 2-week lows before Fed meeting

The dollar weakened broadly against its rivals on Wednesday, nearing a two-week low, as firmer stock markets prompted investors to seek higher-yielding currencies before the outcome of a U.S. Federal Reserve meeting later in the day. Against a basket of its rivals, the greenback edged down 0.3% to 99.60 in early London trading, just above a two-week low of 99.43 hits in the previous session.

The dollar has weakened more than 3.5% after scaling a more than a three-year peak of 102.99 in late March as global central banks launched massive stimulus measures to protect economies from the coronavirus pandemic. The Australian dollar led gains against the greenback with the currency up 0.6% at $0.65433.

"The weakening of the dollar and the strengthening of the commodity-linked currencies suggest that risk appetite may have remained supported for another day," said Charalambos Pissouros, a senior market analyst at JFD Group. U.S. stock futures were up 0.7% while European stocks were a mixed bag.

"The optimism due to several economies starting to loosen restrictive measures may have also helped." The highlight of the day will be the outcome of the U.S. Federal Reserve meeting where investors will be watching for clues on the future policy after it responded to the economic devastation of COVID-19 by slashing rates, buying bonds, and backstopping credit markets.

"There's no expectation the Fed will change policy," said Joe Capurso, FX analyst at the Commonwealth Bank of Australia in February. Before that, quarterly GDP numbers will be released at 1230 GMT, with consensus forecasts for a contraction of around 4%. Analysts are already focusing on the extent of recovery in the coming months.

The euro climbed 0.4% to $1.0862 before a European Central Bank meeting on Thursday.