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NEW YORK: The dollar fell on Wednesday before the Federal Reserve is expected to hike interest rates by an additional 25 basis points, and investors will be watching to see if Fed Chair Jerome Powell strikes a hawkish tone about future monetary policy.

The US central bank is seen as nearing the end of its tightening cycle, and Fed officials have stressed the need to hold rates in restrictive territory for a while to bring down inflation, even as investors price in rate cuts for the second half of the year.

“The market is expressing a great deal of confidence that the terminal fed rate will be lower than the FOMC has indicated,” said Adam Button, chief currency analyst at ForexLive in Toronto. “If the Fed is hawkish, the dollar is going to rally, but the market doesn’t appear to be afraid.”

Fed funds futures traders are pricing for the Fed’s benchmark rate to top out at 4.91% in June and drop back to 4.47% by December while Fed officials have forecast the rate to rise above 5%.

The dollar index was last down 0.32% at 101.78 and is holding just above an eight-month low of 101.5 reached last Thursday.

The ADP National Employment report on Wednesday showed that US private payrolls rose by 106,000 jobs last month, far less than expected in January, hinting at some cooling in the labor market.

This week’s major US economic focus will be the government’s jobs report for January on Friday, which is expected to show that employers added 185,000 jobs during the month.

“Hiring is slowing and the jobs market isn’t as hot as it was a year ago, but it’s not clear if its cooled down enough to halt wage inflation,” said Button.

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