Dollar Gains Ahead of Fed Meeting
Expectations for Fed Policy Meeting
The dollar edged up against the euro on Wednesday ahead of the conclusion of the Federal Reserve policy meeting. This meeting could offer insight into when the U.S. central bank will begin lowering interest rates.
Fed Officials’ Projections
The main market focus will be on Fed officials’ updated economic and interest rate projections, with the U.S. central bank expected to leave rates unchanged for the third consecutive meeting.
Market Speculation
Traders are pricing in a 49% chance of a rate cut in March and a 79% probability in May, according to CME Group’s FedWatch Tool.
Fed Chair’s Message
Investors will be watching to see if Fed Chair Jerome Powell dims the prospect of a rate cut early in the year. The Fed will likely try to push the message that “policy is sufficiently restrictive, but no, we probably aren’t going to be able to cut rates in Q1,” said market strategist Marc Chandler.
Impact on Currency
The dollar, which gauges the performance of the currency against six others, was last up 0.13% on the day at 103.88. The market is already acting like rate cuts are baked in, according to senior corporate FX dealer James Kniveton.
Reaction to Data
The dollar briefly dipped after data on Wednesday showed that U.S. producer prices were unexpectedly unchanged in November. It comes after U.S. consumer prices on Tuesday unexpectedly rose in November as a decline in the cost of gasoline was more than offset by increases in rents.
Central Banks’ Meetings
The European Central Bank, the Bank of England, the Norges Bank, and Swiss National Bank are also due to meet on Thursday. The Norwegian central bank is considered to be the only one that could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in currency markets.
Impact on Other Currencies
The euro dipped 0.06% to $1.0788. Sterling fell 0.44% to $1.2508 after data showed the British economy contracted in October, raising the risk of a recession and potentially complicating the efforts of the Bank of England (BoE) to stick to its anti-inflation stance against cutting rates when it meets on Thursday. The dollar dipped 0.07% to 145.35 Japanese yen.
Other Market Movements
In cryptocurrencies, bitcoin gained 0.95% to $41,850, having retreated from Friday’s 20-month high at $44,729. The Bank of Japan meets next week, and the yen has been volatile on speculation that the BOJ is drawing close to ending its negative rate policy. Rising hopes this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.
Currency Bid Prices
- Dollar index: 103.8800
- Euro/Dollar: $1.0788
- Dollar/Yen: 145.3450
- Euro/Yen: 156.80
- Dollar/Swiss: 0.8768
- Sterling/Dollar: $1.2508
- Dollar/Canadian: 1.3573
- Aussie/Dollar: $0.6571
- Euro/Swiss: 0.9457
- Euro/Sterling: 0.8622
- NZ: $0.6113
- Dollar/Norway: 10.9480
- Euro/Norway: 11.8109
- Dollar/Sweden: 10.4527
- Euro/Sweden: 11.2764
Currency bid prices at 10:10AM (1510 GMT)
