SYDNEY: The US dollar was subdued early on Wednesday as investors waited for the latest guidance from the Federal Reserve, while a surprisingly dovish message from Sweden's central bank saw the crown slump to four-year lows.
The Riksbank cut interest rates more than expected to zero and said it would delay tightening policy until the middle of 2016 as it moved decisively to tackle the risk of deflation.
Both the euro and dollar jumped to four-year highs of 9.3912 crowns and 7.3824 crowns as a result. They have since steadied at 9.3403 and 7.3340 respectively.
"In our view, the Riksbank's dovish forward guidance has pushed the SEK into the FX funding currency club, alongside the EUR, CHF and JPY," analysts at BNP Paribas wrote in a note to clients.
"We expect the SEK to underperform higher-yielding currencies during times of healthy and improving risk appetite."
In contrast, the Fed is all but certain to announce the end of its massive bond-buying stimulus when it wraps up a two-day policy meeting on Wednesday.
But the US central bank is also likely to reassure markets that any interest rate hike is still a long way off with US inflation also weak and the European economy stumbling.
Data overnight showing a big drop in demand for US-made capital goods certainly gave dollar bulls nothing to celebrate about as it offered further evidence the economy may have cooled a bit.
That saw the dollar dip against most of its major peers including the euro and commodity currencies such as the Canadian dollar.
The euro last traded at $1.2736, having touched a one-week peak of $1.2765. The Canadian dollar rose to its highest in over two weeks at C$1.1165 per USD.
Traders said big option expiries on the euro in the $1.2700-25 area could keep the common currency tethered in the near term.
Against the yen, the greenback managed to drift up to 108.10 from Tuesday's low of 107.69, partly as a rally in global stock markets crimped demand for the safe-haven Japanese currency.
European and US stocks posted sold gains on Tuesday thanks to robust corporate earnings from the likes of UBS and Amgen Inc.
Asia has little to offer in terms of major economic data on Wednesday, leaving the focus squarely on the outcome of the Fed policy meeting.
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