Dollar steadies as
pre-Fed nerves dominate
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[December 13, 2016]
By Patrick Graham
(Reuters) - The dollar steadied against the yen and euro on Tuesday
after its weakest day in a week, with markets still uneasy that a
Federal Reserve meeting ending on Wednesday may provoke more investors
to cash in the greenback's recent gains.
Barclays was the latest major bank to cast some doubt on a dollar rally
extending into a first quarter set to be dominated by the first policy
initiatives from the Trump administration.
While investors have bet on the new president taking steps to bolster
growth that will push inflation higher, there are also concerns that he
may spark protectionism globally, driving cash into traditional safe
havens like the yen.
A rise in Fed interest rates on Wednesday, a big reason for the dollar
index's 7 percent rise since September, looks fully priced in and there
are also doubts over whether the U.S. central bank will want to send a
strong signal that more tightening is to follow.
"We think the meeting may be a catalyst for people to take some profit
on long dollar positions," Barclays analyst Hamish Pepper said.
"The dollar tends not to perform particularly well in December. If you
put that together with a well priced Fed meeting plus already long
positioning, it is the right set-up for a pullback."
The yen strengthened to less than 115 yen per dollar in Asian trade
before settling at 115.34, down 0.2 percent on the day but almost a full
yen stronger than 24 hours previously. <JPY=>
It has borne the brunt of the dollar's rally in the past month, down 13
percent since early October. But some traders and analysts have begun to
wonder if the Japanese currency might benefit next year if global
political risks grow.
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Barclays forecasts the dollar weakening to 100 yen in a year's time.
The euro was little changed at $1.0629, having gained 0.7 percent on Monday as
German bund yields rose amid signs Italy will bail out Italian bank Monte dei
Paschi di Siena if need be.
Sterling inched higher, helped by higher than expected inflation for November
and comments from finance minister Philip Hammond backing a transition period to
smooth the process of leaving the European Union.
"Rates markets are discounting close to five 25 basis point Fed rate hikes by
the end of 2018," analysts from BNP Paribas said in a note to clients.
"With the Fed likely to be cautious in its forward-looking language on
Wednesday, those positioned long dollars heading into the meeting may be
concluding that risk-reward is not attractive for staying in positions into the
(Editing by Robin Pomeroy)
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