The dollar edges higher as investors anticipate the two-day Fed meeting which will begin later today where the plans of reaffirming hike rates will be concluded.
The U.S. dollar index rose by 0.26% to 91.89 after foreign traders consolidated with safe haven currencies like the Swiss Franc and Japanese Yen.
“Speculation around the impending FOMC meeting is … driving the U.S. dollar, with markets eyeing both the unwind of the balance sheet and any tweaks to the dot plot,” Felicity Emmett, senior economist at ANZ, she noted.
Investors are content with the Fed being expected to hold steady interest rates for now and are currently trying to pry for clues to an interest rate change in December, projecting a less than 50% futures market. However, the main focus will be the proceedings at the FOMC meeting where actions about policy normalization will be discussed after nearly.
The Federal reserve is also expected to announce its probable plans to begin unwinding its $4.2 trillion portfolio of Treasuries and mortgage-backed securities, but investors are more keen on awaiting information regarding the central bank’s reduction to $3.7 trillion in the said subject that were bought during financial crisis. Investors are evaluating if the slowing pace of inflation has altered central bank’s long-term interest rate plan.
Asian Investors Weigh in
Asian indexes declined on Tuesday, ahead of the Fed meeting, restricted by uncertainty as traders and investors await clues from the proceedings regarding future monetary policy.
After fluctuating between beneficial and negative territory in early trading, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2%, while South Korean shares slightly plunged 0.1 percent.
“We’ve certainly seen some adjustment on the December rate hike probabilities. I think that may carry the day at least until we get into the FOMC,” stated Stephen Innes, head of trading in Asia-Pacific for Oanda, in reference to this week’s Fed policy meeting.
Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore, discussed that the Fed keeping the option of December’s rate increase open will strengthen the support for the dollar.
“So we might see Asian currencies fail to make any significant gains, and they may even be on the back foot, if we do see the dollar resume more upside,” Kotecha added among his statements.
Although existing and progressing geopolitical issues will be the key influence with foreign investors, U.S. production price and consumer price inflation data will still be released within the next two days prior to a speech from Federal Reserve governor, William Dudley of the New York branch.
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