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 In European trading the Norwegian crown slipped toward a four-month
low against the euro, after data showed Norwegian unemployment
surging and consumption falling, fuelling interest rate cut bets.
But the main focus remained on the Fed, which is due to publish its
latest statement at 2 p.m. EDT and seems all but certain to announce
the end of its $4 trillion bond-buying stimulus program.
Less certain is the precise language that the Fed will use, though
investors expect the central bank to reassure markets that, with
U.S. inflation weak and global growth slowing, any rate hike is
still a long way off.
"We expect a relatively unchanged statement, which wouldn't be all
that exciting for markets - markets are leaning toward a reasonably
dovish outcome," said Josh O'Byrne, a currency strategist at Citi.
"We think that's supportive for crosses like the Aussie/dollar and
kiwi/dollar heading into the RBNZ later this evening," he added,
referring to a policy announcement from New Zealand's central bank
due two hours after the Fed.
The Australian dollar climbed 0.3 percent to $0.8878, edging toward
a three-week high, while its New Zealand counterpart rose 0.2
percent to $0.7938.
The dollar index held steady 85.377, having slipped on Tuesday
after data showed a sharp drop in demand for U.S.-made capital
goods. For the week, the index is down about 0.4 percent.
Investors will pay close attention to whether the Fed's statement
continues to refer to "significant" slack in the U.S. labor market
as well as whether it retains language indicating rates will remain
low for a "considerable time", which many economists expect.
"Even a small modification to the (Fed) language would be taken as
hawkish and the dollar would benefit from that," said Adam Cole,
global head of currency strategy at RBC Capital Markets in London.
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NORWEGIAN CROWN GETS A KNOCK
The Swedish crown stabilized after sliding to four-year lows on
Tuesday, after the Riksbank cut interest rates to zero and said it
would delay tightening policy until the middle of 2016 as it moved
to tackle the risk of deflation.
Both the euro and dollar jumped to four-year highs of 9.3912 crowns
and 7.3824 crowns respectively on Tuesday as a result of the rate
cut. They have since steadied at 9.3490 and 7.3454.
"In our view, the Riksbank's dovish forward guidance has pushed the
SEK (crown) into the FX funding currency club, alongside the euro,
the Swiss franc and the yen," analysts at BNP Paribas wrote in a
note to clients. "We expect the SEK to underperform higher-yielding
currencies during times of healthy and improving risk appetite."
The bet that Norway's central bank would eventually have to follow
suit in cutting rates sent the Norwegian crown to a day's low of
8.4859 crowns per euro. It last traded at 8.4754 crowns per euro,
down 0.6 percent on the day.
The euro held steady at $1.2735, near a one-week high of $1.2765 set
on Tuesday. Traders said big option expiries in the $1.2700-25 area
could keep the common currency tethered in the near term.
(Editing by John Stonestreet and Toby Chopra)
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