FOREX ASIA UPDATE - USD

The US dollar was the weakest currency overnight, while CAD registered the strongest gains.

USDJPY fell abruptly when PBoC Governor Zhou was quoted saying that China does not intend to accumulate further foreign exchange reserves.

Actually, we don't believe it has been an intention for China to accumulate FX reserves in the manner that it has, but is rather a by-product of other policies. In that sense, the comments should not be construed as either positive or negative for the dollar.

Zhou also said that a new investment agency will be allocated a portion of PBoC's reserves to be managed on a profit maximisation basis. This information is also not new.

The FOMC statement is due today at around 1815 GMT and is the main focus.

Our economists believe that the statement will express less confidence in the view that growth will be at least "moderate".

However, judging by the performance of equity markets this week, we think the market has already priced in a slightly more dovish FOMC.

As such, we suspect EURUSD is probably peaking around current levels, while the yen is biased to further strength against the dollar in line with the firmer tone of Japanese data and the uncertain carry trade environment.