Dollar eases across the board as Fed decision looms

Dollar eases across the board as Fed decision looms

2 Nov    Finance News

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NEW YORK — The dollar slipped broadly on Wednesday as investors awaited a Federal Reserve policy decision amid speculation it might signal a slowdown in the pace of future rate hikes.

The central bank will release its policy statement at 2 p.m. (1800 GMT), with investors widely expecting a 75 basis points (bps) rate hike, the fourth such increase in a row.

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But for the December meeting, the futures market is split on the odds of a 75- or 50-bps increase.

The euro was 0.11% higher against the dollar at $0.9885, while against the Japanese yen, the dollar fell 0.8% to 147.03 yen.

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“The typical calm before the FOMC storm is what we’re seeing this morning, across all asset classes really,” said Michael Brown, head of market intelligence at payments firm Caxton in London.

“I doubt we’ll see much in the way of movement until the Fed decision; though the risks after it, in my view, are skewed towards USD upside on a more hawkish statement than expected.”

Growing expectations that the Fed may dial down the aggressiveness of its interest rate hikes has weighed on the dollar in recent weeks and a blow to those expectations could lift the dollar.

“We think the Fed will want to maintain optionality of hiking 50 bps or 75 bps in December, as there are still another two CPI (inflation) reports and two NFP (non-farm payroll report) releases ahead of that meeting,” Daria Parkhomenko, FX strategist at RBC Capital Markets.

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Sterling was little-changed on the day at $1.14845, ahead of a policy decision on Thursday, where the Bank of England is expected to announce a 75-bps rate increase.

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The yen, down about 22% against the dollar this year, rose about 0.8% to 147.07 per dollar on Wednesday, with traders on alert for possible intervention around the Fed meeting.

Japanese authorities are widely considered to have intervened in FX markets several times since September to pull the yen back from 32-year lows.

Japan’s currency interventions have been stealth operations in order to maximize the effects of its forays into the market, Finance Minister Shunichi Suzuki said on Tuesday, after the government spent a record $43 billion supporting the yen last month.

The risk-sensitive Australian and New Zealand dollars rose on Wednesday, buoyed by a rally in Chinese equity markets amid hopes for soft landing in China’s troubled housing market.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Joice Alves in London; Editing by Mark Potter, Alex Richardson, William Maclean)

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