Dollar steady ahead of historic Fed meeting

The dollar rose against a basket of global currencies on Tuesday, as the US Federal Reserve began its two-day policy meeting where it is tipped to raise interest rates by 25 basis points.

“People are looking forward to the most eagerly anticipated event that we’ve really seen in some time”, said Michael Johnston, senior dealer at HiFX in Auckland.

The currency will drop nearly 7 percent by the end of March, to 63 USA cents, according to the median forecast of more than 40 analysts surveyed by Bloomberg.

“But I have an image that profit- taking will kick in because there would be no more of the material that was moving the market”, said Mr. Sakai. The surprise could come with a less than robust outlook which might mean that future rate hikes could be fewer and far between.

“While part of the unrestrained volatility in recent days could contribute towards the milestone lows found in the price of oil, there are still lingering concerns that the statement from the Federal Open Market Committee meeting will be strictly dovish”, he said. The euro was down 0.6% at $1.0925. That still left it some way off a 12-1/2-year high hit at the start of the month. Nevertheless, most of the attention was on how the dollar would react after Wednesday’s Fed decision.

The dollar edged back from a near one-week high versus a basket of other major currencies with Citi, the FX market’s single biggest player, saying positioning in the dollar against the euro was effectively neutral now after a clearout over the past fortnight.

Kit Juckes, head of forex at Societe Generale, said, “History suggests there’s a chance that the dollar will weaken rather than rally after the FOMC announcement – particularly against the yen”. The dollar was steady at 121.70 yen, pulling further away from a six-week trough of 120.35 struck Monday. Beijing said it was meant to discourage investors from exclusively tracking the yuan’s fluctuations against the greenback.

Asia’s gains helped emerging market stocks climb 1.2%, as they gunned for their second consecutive rise having been bashed by nine straight falls before that.

Asian stocks gained on Wednesday, with sentiment lifting as Wall Street rose before a likely hike in US interest rates, while the dollar held to large gains made as Treasury yields picked up.