Dollar holds breath before Fed outcome
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[June 13, 2018]
By Tommy Wilkes
LONDON (Reuters) - The dollar held firm on
Wednesday and hit a three-week high against the Japanese yen before a
U.S. Federal Reserve policy announcement that investors will scan for
clues on how many more rate hikes there will be this year.
The Fed concludes its two-day policy meeting later on Wednesday and is
widely expected to hike rates for the second time this year. Market
expectations are for another couple of hikes through the remainder of
2018.
Reports that Fed Chair Jerome Powell was considering holding a news
conference and taking questions after every Fed meeting also supported
the dollar as it raised expectations that the Fed could hike rates more
often. The central bank currently holds a news conference after every
other meeting.
Investors are focused on whether the Fed signals tightening policy four
times in 2018, from the three times indicated earlier this year, after
the world's largest economy has expanded steadily.
Tighter monetary policy in the United States and reduced expectations of
rate rises elsewhere sent the dollar on a six-week long rally, but that
run has since fizzled.
Analysts are divided on whether the Fed meeting will further boost the
dollar, with the focus set to shift to a European Central Bank policy
meeting on Thursday.
"The FOMC (Federal Open Market Committee) continues to shift to a
neutral policy stance from an accommodative one, and we expect the
committee to remove the forward guidance on rates remaining below their
longer-run rate. Gradual policy tightening is already well priced by the
market, so we do not expect the dollar to benefit," BNP Paribas analysts
said.
The dollar index <.DXY> traded flat at 93.801 after earlier inching up
0.1 percent.
The greenback fell 0.2 percent versus the euro <EUR=> to $1.1762, while
gaining 0.2 percent against the yen to 110.58 yen <JPY=> after brushing
110.68, its highest since May 23.
Speculation that the ECB could signal its intention to unwind its
massive bond purchasing program in 2018 lifted the euro to a three-week
high of $1.1840 last week and has prompted some strategists to become
more bullish on the euro.
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U.S. dollars and other world currencies lie in a charity receptacle
at Pearson international airport in Toronto, Ontario, Canada June
13, 2018. REUTERS/Chris Helgren
"The euro is trading toward the bottom end of recent ranges and we expect the
currency to strengthen from these levels, particularly against the dollar," said
Paul Bednarczyk, head of G10 FX at Continuum Economics in London.
Emerging market currencies fell as the looming Fed rate hike hit Turkey's lira
<TRY=> and South Africa's rand <ZAR=>. Countries like Turkey with large external
financing needs are particularly vulnerable to rise dollar funding costs.
The British pound dipped to a one week low of $1.3322 <GBP=D3>, unable to hold
gains made overnight when it briefly rose to $1.3424 after British Prime
Minister Theresa May saw off a rebellion in parliament over amendments to a bill
for the country's exit from the European Union next year.
Slower-than-expected inflation numbers published on Wednesday also hurt the
pound, as it weakens the case for a Bank of England rate rise in August.
The Canadian dollar, which has fallen heavily in recent weeks on concerns an
escalating trade dispute with the United States would hit its northern
neighbor's economy hard, fell another 0.1 percent to C$1.3027 <CAD=>, not far
from almost three-month lows of C$1.3068.
The Norwegian crown rallied for a second consecutive day against the dollar <NOK=>
and the euro <EURNOK=>, hitting its strongest against the single currency since
late October after an upbeat central bank survey raised expectations of tighter
monetary policy.
(Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Toby
Chopra/Keith Weir)
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