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NEW YORK: The U.S. dollar held recent gains in narrow trading on Wednesday as markets awaited a Federal Reserve policy statement later in the day to affirm, or upset, expectations for interest rate hikes in the new year.

The dollar index, which measures the greenback against six major peers, was up 0.04% at midmorning in New York after trading through the day within 0.2% of its Tuesday close.

Expectations for Fed hawkishness and European Central Bank dovishness have kept the dollar strong in recent weeks, with little movement off a high of 96.938 last month, its strongest level since July 2020.

The dollar dipped slightly on a report showing that U.S. retail sales increased less than expected in November.

But the data also showed that sales had been stronger in October than previously reported, suggesting that the lighter number was payback for a spending surge to avoid shortages and higher prices for goods.

Readings from the two months together backed up market expectations for strong fourth quarter growth, said Joseph Manimbo, senior market analyst at Western Union Business Solutions. “It is all about the Fed,” Manimbo said.

The Fed’s policy statement and economic projections were due at 2 p.m. Eastern (1900 GMT).

Markets have been pricing for the Fed to end its bond-buying around March and then proceed with one or maybe two rate hikes in 2022. Any more than two rate hikes pencilled in for next year would be considered a hawkish surprise.

The meeting of the Fed’s policy committee comes as the rapid spread of the Omicron variant of COVID-19 has spurred concern that the economic recovery will be derailed. Preliminary evidence indicates that COVID-19 vaccines may be less effective against infection and transmission linked to Omicron, the World Health Organization said on Wednesday.

“We can’t recall going into an FOMC meeting with the consensus so strongly favouring a hawkish outcome,” Derek Halpenny, MUFG head of research, wrote in a note to clients.

Versus the Japanese yen, the dollar was up 0.2% at 113.805. Currency markets were little affected overnight by mixed economic data from China, which showed that factory output grew faster than expected but retail sales missed forecasts.

The euro was flat against the dollar at $1.1257 ahead of a European Central Bank meeting on Thursday, where officials are expected to confirm that the bank’s pandemic bond-buying programme will end next March.

Britain’s pound briefly rose against the dollar after data showing that UK inflation jumped to its highest in more than 10 years in November. It was unchanged on the day at at $1.3227 at 1449 GMT.

The Bank of England is expected to keep rates unchanged when it meets on Thursday, due to the spread of the Omicron variant in Britain. That’s a reversal from expectations last month for a rate hike.

The Canadian dollar weakened against the greenback to a three-month low as a report showed continued high inflation. The loonie, which has been bruised recently by falling oil prices, was last at $1.2903.

The Australian dollar was up 0.3% at $0.7128. The New Zealand dollar was down 0.1% at $0.6733. Cryptocurrency bitcoin was down 2% on the day at $47,259.

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