NEW YORK (TheStreet) -- The U.S. dollar was taking pause Tuesday morning, as the markets braced for Federal Reserve chairman Ben Bernanke's first post-policy meeting press conference tomorrow, Chinese dollar reallocation and a period of volatility.
The U.S. dollar index was falling 0.2% to $73.91.
PowerShares DB US Dollar Index Bearish
was trading sideways at $28.87, while
PowerShares DB US Dollar Index Bullish
was falling 0.1% to $21.18.
On Wednesday, at 12:30 pm ET, policymakers are expected to release a statement showing that they've left the Fed funds rate unchanged at near-zero levels. But the outcome of Bernanke's press conference may be harder to predict.
"We are under the impression that this is not really Bernanke's first press conference, but his first public press conference," said Brown Brothers Harriman Global Head of Currency Strategy Marc Chandler. "The public nature of this one is new and has potential to inject some short-term volatility."
Chandler anticipates that reporters will grill Bernanke about policy, inflation and the dollar. Meanwhile, UBS foreign exchange strategist Chris Walker anticipates that Bernanke will indicate that quantitative easing will end on time in June. This should help offset some bearish impact from U.S. first-quarter gross domestic product, which is expected to be soft.
"The week ahead features several events that will test the market's bearish view on the U.S. dollar," said Walker, noting that U.K. first-quarter GDP numbers may "extinguish hopes of early rate hikes by the Bank of England, and that the Bank of Japan will likely keep policy "super-loose."
The strategist says currency levels haven't factored in the risk of U.S. policy tightening, post-QE2.
EverBank World Markets President Chuck Butler, on the other hand, believes the dollar could suffer another blow, as reports have been saying that China plans to draw down part of its $3 trillion U.S. dollar reserve by $200 billion to help boost funding for a branch of its sovereign wealth fund that invests in higher-yielding assets.
"If you don't think $200 billion can move a market, in 2005, about $350 billion in dollar repatriation caused a dollar rally that lasted nine months," said Butler. "So $200 billion could go a long way toward pushing the dollar even lower."
-- Written by Andrea Tse in New York.
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