Dollar Steadies on Carry Trades, Fed Pause

The US dollar has steadied in early Asian trading, supported by carry trades as the Federal Reserve is expected to keep interest rates unchanged at its upcoming policy meeting.

According to OCBC strategists, the Fed's prolonged pause on rate adjustments has kept the interest rate differential between the US and other major economies relatively wide, making the dollar an attractive funding currency for carry trades.

In a carry trade, investors borrow in a low-yielding currency like the dollar and invest in higher-yielding assets elsewhere, profiting from the spread. As long as the Fed remains on hold, this dynamic is likely to persist, providing a floor under the dollar's value.