Dollar eases as markets await Fed decision
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NEW YORK, July 29 : The U.S. dollar edged down on Wednesday but stuck to familiar ranges against major currencies as investors awaited a Federal Reserve interest-rate decision, with some analysts warning that an interest-rate hike cannot be ruled out.
Hostilities in the Middle East flared anew, sending oil prices higher, after joint strikes by U.S. and Saudi Arabia on Iran-backed groups in Iraq.
The strikes came hours after the U.S. military said it had averted a surprise Iranian attack on U.S. troops in the region.
Moves in currencies were largely subdued as investors stayed on the sidelines ahead of the Federal Open Market Committee’s decision, with markets pricing in a roughly 36 per cent chance of a 25-basis-point hike.
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The dollar index, which tracks the U.S. currency against a basket of six others, was down 0.04 per cent at 101.38.
“Today’s Fed decision is incredibly hard to gauge,” said Kyle Chapman, FX markets analyst at Ballinger Group in London.
“A hold with a hawkish twist is the most likely outcome here, and in theory that should force an immediate repricing of short-term rates that hurts the dollar,” he said.
Kyle, however, warned that a lot of weight is going to be placed on the vote split, as investors look for clues to policymakers’ thinking.
“Warsh has given neither any indication as to the path for rates, nor any fundamental strategy or framework with which the Fed is likely to process the incoming data. I expect him to stay quiet once again,” Kyle said.
The euro edged up 0.03 per cent to $1.138875, while sterling was about flat at $1.32925, but remained near its weakest level since July 1.
The loonie was trading 0.2 per cent higher at C$1.4085 to the greenback, or 70.98 U.S. cents.
SWISS FRANC, JAPANESE YEN IN FOCUS
While the U.S. central bank is widely expected to keep rates unchanged, limited guidance from Chair Kevin Warsh coupled with higher oil prices have prompted a growing number of brokerages to pencil in the risk of a surprise rate hike.
“We’re going into this meeting with a round of one-in-three chance for a rate hike priced in. First time we’ve seen pricing like that for a while,” Nick Rees, head of macro research at Monex Europe, said.
“There is genuine uncertainty around this meeting, and I would expect that to lead to some volatility on the outcome, whichever way it breaks.”
Against the yen, the dollar slipped 0.05 per cent to 163.78 yen, but remained not far from a 40-year high and kept traders on alert for potential intervention from Japanese authorities to support it.
“There is a possibility that the FOMC’s policy decision and the Chair’s press conference could trigger a further strengthening of the dollar, pushing USD/JPY to 164,” said Hirofumi Suzuki, chief FX strategist at SMBC.
Bitcoin rose about 0.7 per cent to $64,249.
Source: Reuters
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