Dollar Declines Ahead of Fed’s Monetary Policy Meeting

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The US dollar declined against its major peers on Wednesday, as the Federal Reserve meeting due later in the day kept the currency under pressure.

The dollar index, which gauges the greenback’s strength against six major currencies, lost 0.2 percent to $88.79. The index was hovering just above from last week’s three-year lows of $88.25. It is also on track for its biggest monthly drop since March 2016.

Even so, the US dollar index was still higher by 13 percent over the past five years.  

The dollar raised 0.1 percent to 108.94 against the yen. It was down by 0.3 percent to 1.2292 against its Canadian counterpart. The greenback also slipped 0.1 percent to 0.9344 against the Swiss franc.

The euro on the other hand, gained 0.3 percent to 1.24447 against the dollar. Pound sterling was also up 0.04 percent to 1.4152 against the greenback.

The Australian dollar, another high-earning currency, climbed 0.1 percent to 0.8095. Kiwi added 1 percent to 0.7406 against its American counterpart as well.

Fed Monetary Policy Meeting in Focus

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The dollar stayed on negative territory, as investors remained cautious ahead of Fed’s monthly policy decision later in the day.

Senior fixed-income portfolio manager Seamus Mac Gorain said that all ears and eyes will now turn to Fed’s statement.

This will be the central bank’s first monetary policy meeting of 2018, while it is going to be Fed Chair Janet Yellen’s last one before handing over her position to Fed Governor Jerome Powell.

Market participants are hoping the central bank would provide more hints on the pace of future rate hikes.  

Gorain said that they saw nothing in the data that might suggest the Fed would not raise interest rates again in March.

The bank has been tightening policy for two years now. During that period, the US’ financial state has considerably improved. With rising stock prices, strong credit markets, and dollar falling, Fed might just have a reason to accelerate policy tightening this year.

The bank is expected to not have any significant changes on the outlook for the pace at which it will hike rates.

This leaves the greenback exposed to the notion that other central banks are likely to have more leeway to contract policy faster than currently priced in to markets.

Fed has hiked rates five times ever since it began easing its 2008 distinct policies in December 2015. However, over that period, the dollar has dropped over 11 percent.

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