Dollar steady as markets hunker down for Fed rate cut
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[October 30, 2019] By
Dhara Ranasinghe
LONDON (Reuters) - The dollar was largely
steady against other major currencies on Wednesday as investors braced
for a rate cut by the U.S. Federal Reserve and an advance reading of
economic growth in the third quarter that could shed light on the rate
outlook.
Sterling was a tad firmer, with Britain now set to hold its first
December election in almost a century after Prime Minister Boris Johnson
finally won parliamentary approval for a snap ballot to break the Brexit
deadlock.
For now the spotlight turned to the Fed, which is expected to cut rates
for a third time in a row when it concludes its two-day meeting on
Wednesday.
An advance reading of economic growth data in the third quarter is due
out before the Fed concludes its meeting and comes ahead of other major
data releases such as Friday's non-farm payrolls report.
Economists polled by Reuters expect the U.S. economy grew 1.6% in the
third quarter, compared with 2% the previous quarter.
"In the last 4-5 weeks there has been a concern that the consumer part
of the market is starting to slow and that could mean more cuts next
year," said Derek Halpenny, European head of global markets at MUFG in
London.
"So what lies ahead post the Fed meeting, the GDP data, payrolls will
shape market expectations in addition to what (Fed chief Jerome) Powell
will say today."
The dollar was steady against the euro at $1.1114 <EUR=EBS> and
marginally lower versus a basket of six other major currencies at 97.68
<.DXY>.
Against the Japanese yen, the greenback was little moved at 108.83 yen <JPY=EBS>,
not far from its three-month high of 109.07 yen touched on Tuesday.
Investors are watching for any indication that further cuts are likely,
with futures pricing suggesting more easing is expected in 2020. If that
is not foreshadowed, traders expect the dollar to rise.
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An employee counts U.S. dollar bills at a money exchange office in
central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany/File
Photo
"The Fed is treading a fine line at the moment and there's no incentive to get
off that and make a strong case one way or another on rates," said Neil Mellor,
senior currency analyst at BNY Mellon in London.
"So if there's no equivocal view on Fed policy, there's no equivocal view for
the dollar."
RISK ASSETS
Optimism that Washington and Beijing would finalize the first-stage of a trade
deal next month had boosted risk assets in recent days, but markets have turned
wary.
A U.S. administration official said on Tuesday an interim trade agreement
between the United States and China might not be completed in time for signing
on the sidelines of an Asia-Pacific summit in Chile next month, but that does
not mean negotiations are falling apart.
The Chinese yuan inched up marginally as investors awaited the outcome of the
Fed meeting and more clarity on how Sino-U.S. trade talks are going.
In the spot market, offshore spot yuan <CNH=EBS> was last changing hands at
7.0550 per dollar, 0.15% firmer on the day.
Sterling meanwhile drew support from hopes that a disorderly Brexit can be
avoided with focus now on the December snap election.
The British pound was last at $1.2891 <GBP=D3>, a tad firmer on the day but
below five-month highs above $1.30 hit earlier this month. It was also a fifth
of a percent firmer against the euro at 86.20 pence <EURGBP=D3>.
(Reporting by Dhara Ranasinghe; Additional reporting by Tomo Uetake in TOKYO;
Editing by Giles Elgood and Steve Orlofsky)
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