NEW YORK: The dollar fell against a basket of currencies on Wednesday ahead of the outcome of a Federal Reserve meeting, as investors evaluated how much expected U.S. central bank hawkishness is already priced into the greenback.
The Fed is expected to hike rates by 50 basis points, whichwould be the largest increase in two decades, and announce plans to reduce its $9 trillion balance sheet as it tackles inflation rising at the fastest pace in 40 years.
Comments by Fed Chairman Jerome Powell at the conclusion of the meeting will be scrutinized for signals on how the U.S.central bank will balance the need to stem rising pricepressures against weakening growth if the economy stutters.
“Chair Powell’s post-decision press conference will be key.If he shows any hints of dovishness, markets will take yieldsand the dollar lower,” Win Thin, global head of currencystrategy at Brown Brothers Harriman, said in a report.
“That said, we see no reason for Powell to hedge his betsright now and so we expect full speed ahead from the Fed,” headded.
Dollar towers at two-decade high on growth woes, Fed outlook
The dollar index was last at 103.24, down 0.16% onthe day. It reached 103.93 on Thursday, the highest since Dec.2002.
Fed funds futures traders are pricing for the Fed’sbenchmark rate to increase to 2.96% by year-end, from 0.33% now.
The Fed is expected to take a more hawkish approach tomonetary policy than its peers, with Europe struggling fromweaker growth and energy disruptions due to sanctions imposed on Russia after its invasion of Ukraine.
The EU proposed its toughest sanctions yet against Russia onWednesday, including a phased oil embargo.
The euro rose to $1.0551, up 0.30%, after droppingto $1.0470 on Thursday, the lowest since January 2017.
The U.S. dollar has also benefited from safe-haven flows asCOVID-19 restrictions in China trigger concerns about globalgrowth and new supply chain disruptions.
Beijing shut scores of metro stations and bus routes andextended COVID-19 curbs on many public venues on Wednesday, focusing efforts to avoid the fate of Shanghai, where millions have been under strict lockdown for more than a month.
The Aussie dollar outperformed for the second day, after theReserve Bank of Australia on Tuesday raised its cash rate by asurprisingly large 25 basis points to 0.35%, the first hike inover a decade, and flagged more to come as it pulls down thecurtain on its massive pandemic stimulus.
The Aussie gained 0.63% to $0.7141.