|
 After another surge for the U.S. currency in the past two weeks,
markets have largely priced in the Fed dropping its reference to
patience on policy, clearing the way for a rate hike as early as
June.
Anything less, or an explicit warning from the Fed that the dollar's
strength may slow it down on policy moves, would be likely to
provoke a sharp retreat in the dollar, although analysts are split
on which currencies would benefit most.
"The most crowded positions are short euros, or short Scandinavian
currencies so if we don't get the removal of the patience language
it would be the dollar against that Europe bloc which would see the
most dramatic moves," said Michael Sneyd, a strategist with BNP
Paribas in London.
"Our base case is that they will remove patience. If we get that and
a measured message on the dollar's impact on inflation then, given
the slight retracement we have seen in the first half of this week,
I think the dollar will do well."
Against a basket of currencies, the dollar was less than 0.1 percent
lower at 99.498 <.DXY>, and within spitting distance of its recent
12-year peak of 100.390.
The euro inched up to $1.0611, having failed to sustain a modest
bounce to $1.0651 overnight. Support was seen at $1.0551 ahead of
the 12-year trough of $1.0457.
The Fed's statement is due at 1800 GMT, followed half an hour later
by a press conference with Chair Janet Yellen. The central bank will
also release members' forecasts for inflation and interest rates,
and some analysts suspect the trajectory of future increases could
be lowered.
A string of strong payroll reports, and a perceived shift in
rhetoric by Yellen and others earlier this month, has left the
market increasingly convinced the Fed will raise rates in June or
sometime in the third quarter.
Against that is the impact of the dollar's 20 percent rise in the
past six months on inflation and the deep-seated concern over growth
that has been beaten into central banks over seven barren years for
the developed world.
[to top of second column] |
The dollar's recent rise has also hit Wall Street as some U.S.
multinationals appear to be feeling pain from it.
"Its not my baseline scenario but I do think there's a risk that
they don't remove patience," said George Saravelos, G10 currency
strategist with Deutsche Bank in London.
"(If that happened) I think you would definitely see a squeeze on
dollar longs but the bigger move would be on currencies like the
Turkish lira or South African rand, where people would be encouraged
to put carry trades on."
The dollar was also roughly steady at 121.26 yen, mid-way between
support at 120.67 and resistance at 122.02.
Sterling was under pressure at $1.4759 ahead of a busy session that
includes British jobs data, minutes of the Bank of England's last
policy meeting and the government's last budget before the election
in May.
(Editing by Susan Fenton)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
