FOREX-Dollar languishes before Fed meeting, Asian currencies calmer

By Rocky Swift

TOKYO, May 7 (Reuters) - The dollar was largely flat on Wednesday before a Federal Reserve meeting to determine policy for an uncertain economy and as major investors in Asia continued cashing out of U.S. assets.

News that the United States and China are due to talk on Saturday eased concerns about a trade war that has shaken investor confidence in the dollar and U.S. markets. Fed Chair Jerome Powell was expected to say more data is needed before deciding the U.S. central bank's next move.

There appeared to be some letup in the selling of dollars since last week, which has been driven by investors globally, particularly in lower-yielding emerging markets, swapping out of the currency or bringing money home.

The greenback got a "micro bounce" on the impending trade talks, but broad pessimism about the U.S. economy and the dollar remain intact, according to IG analyst Tony Sycamore.

"I don't think the theme of U.S. dollar weakness is going to change," Sycamore said. "There's also a lot of uncertainty from offshore investors as to whether they want to be overexposed or overweight U.S. equities."

Earlier this week, a record rally in the Taiwan dollar TWD=TP spread to other currencies in Asia, such as the Singapore dollar SGD= and the South Korean won KRW=.

The Taiwan dollar has surged against the U.S. currency since U.S. President Donald Trump's April 2 announcement of sweeping tariffs on trade partners. It was 0.7% weaker on Wednesday.

The won reached a six-month high at Wednesday's opening, but subsequently fell 1.5%. The yuan CNH=D3 weakened as China announced a long-awaited rate cut.

The People's Bank of China governor said on Wednesday the central bank would cut the amount of cash that banks must hold as reserves, the first reduction in 2025, to prop up the world's second biggest economy amid the simmering trade war.

The dollar index =USD slipped 0.1%, extending losses into a fourth day. The euro EUR= was flat at $1.1366.

The Fed is widely expected to leave benchmark interest rates unchanged on Wednesday. Traders are betting the Fed will resume its easing cycle in July, but some economists reckon high inflation will prevent any rate cuts at all this year.

U.S. stock futures turned positive after Washington officials said Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's top economic official in Switzerland on Saturday. Trump indicated on Sunday that some trade deals would be announced this week.

Currency markets seemed a bit calmer on Wednesday following a stunning two-day leap for Taiwan's currency.

The Hong Kong dollar HKD= traded a bit away from the strong end of its peg and the Japanese yen JPY= was 0.4% weaker, snapping a three-day advance as Japanese markets reopened after a two-day holiday.

"We agree with the view expressed in the market that the extremely volatile markets seen in Taiwan FX over the last few days are a warning shot," George Saravelos, global head of FX research at Deutsche Bank, wrote.

"Self-fulfilling moves could happen to other currencies where the institutional investor industry is left with a large overhang of unhedged USD asset positions. The JPY immediately comes to mind."