Dollar stalls in Europe as Fed rate hike expectations fade

The dollar stalled near an almost three-week low against a basket of major currencies on Monday ahead of this week's Federal Reserve meeting, as investors bet interest rates would be kept at their record lows until at least December. The greenback has struggled since hitting 12-year highs in March, as rate hike expectations have been pushed back. Though some in the market still think the Fed could act this week, the view that faltering global growth could push that back to the end of the year - or even into 2016 - is gathering steam.
Ahead of the start of the Fed's two-day meeting on Wednesday, the dollar was flat against its basket at 95.225, having earlier slipped as low as 94.913, its weakest since August 26. "Until Thursday I think the dollar will be moved by strategic positioning (and) risk sentiment... rather than fundamental input," said Commerzbank FX strategist Esther Reichelt in Frankfurt. "We have all the information we require so far to have a view on the US dollar and nothing before Thursday is going to change any of that."
More disappointing numbers from China added to worries about a slowdown in the world's second-biggest economy. Growth in investment and factory output missed forecasts, raising the risk that Chinese growth may slow to below 7 percent in the third quarter for the first time since the global financial crisis. "If there is an uncertain world, if China is slowing aggressively, then you have a situation where the Fed may well reconsider raising interest rates," said Bank of New York Mellon FX strategist Neil Mellor in London. "(Investors) might reasonably be asking whether rates are going up in December."
Currency speculators in the week ended September 8 raised bullish bets on the greenback for the first time in about a month, the latest figures showed, suggesting perhaps that some in the market are betting on some action. Even if there were to be a rate hike this week, the dollar could come under pressure if Fed policymakers downgrade their views on the appropriate path for interest rates in 2016 in their so-called "dot chart", said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. The dollar was 0.2 percent lower against the yen at 120.32 yen. Against Europe's single currency it managed to edge up 0.1 percent, to $1.1323 per euro.