Dollar Edges Lower Ahead of Fed Policy Decision By Investing.com

By Peter Nurse

Investing.com – The U.S. dollar edged lower in early European trade Wednesday ahead of the latest Federal Reserve , with caution ahead of the event resulting in tight trading ranges. 

At 3 AM ET (0700 GMT), the , which tracks the greenback against a basket of six other currencies, inched down to 103.477, holding below the 103.93 level seen late last week, the highest since December 2002.

The Fed will hand down its latest later in the day and is expected to hike interest rates aggressively by 50 basis points to combat inflation running at 40-year highs.

Also of interest will be Fed Chair Jerome Powell’s news conference, with traders looking for clues on how far and how fast the central bank is prepared to hike rates, particularly as the Fed’s next meeting is not until June.

Hikes of 50 basis points are fully priced in by swaps traders for each of the next three meetings, in June, July and September, the most aggressive trajectory in three decades. 

“Assuming that the Fed does not start to have second thoughts about the pace of its tightening cycle – and that seems unlikely – the re-iteration of an ‘expeditious’ normalisation of policy should keep the short end of the U.S. yield curve supported and the dollar bid,” said analysts at ING, in a note.

The economic data slate Wednesday includes the release of the monthly , ahead of Friday’s official for April, which should show how the employment market is holding up. There are 11.5 million in the U.S. but is at multi-decade lows. 

Elsewhere, fell 0.2% to 1.2476, with the Bank of England set to hand down its a day after its U.S. counterpart.

The U.K. central bank is widely expected to lift again Thursday, having already lifted rates three times since late 2021, but BoE Governor Andrew Bailey has already noted the difficult path bankers need to tread to avoid potentially triggering a recession.

“Our base-case scenario is a 25bp rate hike, supported by eight out of nine MPC members,” said ING. “We think that would prompt a bit more dovish repricing across the GBP curve and the pound could moderately weaken after the rate announcement. Such weakness should prove more pronounced against the dollar, which could find some more support from the FOMC meeting.”

edged up 0.1% to 1.0525, staying marginally above last week’s 1.0470 low, the weakest level since January 2017. 

The proposed on Wednesday removing Russia’s biggest bank Sberbank (MCX:) and two other banks from the international SWIFT transaction and messaging system, escalating the sanctions on Moscow over the war in Ukraine.

rose 0.3% to 0.7114, maintaining its strength after the Reserve Bank of Australia hiked earlier in the week to combat inflation. edged higher to 130.12 while was largely unchanged at 6.6083, with both Japanese and Chinese markets on holiday.