The Dollar Holds Steady Ahead of Fed Rate Decision
The dollar remained firm on Wednesday but softened slightly against the yen ahead of a much-anticipated rate decision by the Federal Reserve later in the day. The U.S. dollar index, which measures the greenback against a basket of rivals, stayed mostly flat at 105.13 as traders awaited the Fed’s rate decision.
Market Expectations for Rate Decision
Markets expect the Fed to keep rates unchanged at 5.25% to 5.50%, focusing instead on the central bank’s forward guidance. Futures markets are pricing in a 30% likelihood of a quarter-point increase in November or a 40% chance it will happen in December.
“We expect the FOMC to retain its forecast of one extra 25 hike by year-end, though it will not follow through with it in our view,” said Carol Kong, economist and currency strategist at the Commonwealth Bank of Australia.
Yen Strength and Bank of Japan’s Policy
The yen strengthened by nearly 0.1% against the greenback, sitting at 147.77, as speculation grew about a possible sooner-than-expected exit from the Bank of Japan’s ultra-loose policy. However, the central bank is expected to keep interest rates low on Friday and reassure markets that monetary stimulus will continue amid economic uncertainty.
Japan’s top financial diplomat, Masato Kanda, emphasized the importance of close communication with U.S. and overseas policymakers regarding currencies and closely monitoring market movements with a “high sense of urgency.”
Australian Dollar and New Zealand Dollar
The Australian dollar, seen as a proxy for China growth, rose almost 0.1% after minutes from the Reserve Bank of Australia’s latest policy meeting indicated more interest rate increases in the future.
The New Zealand dollar also saw a slight increase of over 0.2% against the dollar, reaching $0.5950.
Euro and Sterling
The euro and sterling remained mostly unchanged in the Asian morning, with the euro at $1.0680 and sterling at $1.2391.
Upcoming UK CPI Data
Market attention will shift to the UK Consumer Price Index released on Wednesday, the last piece of inflation data before the Bank of England announces its rate decision on Thursday.
Cryptocurrencies
Bitcoin hovered around $27,210 after reaching a three-week high on Tuesday.
Hot Take: Dollar Holds Steady Ahead of Fed Rate Decision
The dollar maintained its strength against a basket of currencies but softened slightly against the yen as traders eagerly awaited the Federal Reserve’s rate decision. Market expectations suggest that rates will remain unchanged, although there is speculation about future hikes. The yen saw some strengthening amid discussions of a possible exit from Japan’s ultra-loose policy, but it is anticipated that rates will remain low. Meanwhile, the Australian dollar rose as minutes from the Reserve Bank of Australia’s meeting indicated future interest rate increases. The New Zealand dollar also experienced a slight increase against the dollar. All eyes are now on upcoming inflation data in the UK and the Fed’s rate decision.
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