Dollar on Tight Ranges Ahead of Fed Policy Review

The dollar stayed on tight ranges on Wednesday as investors shifted their attention on the Federal Reserve’s policy review later in the day. Still, world markets feel jittery over the escalating trade row between the United States and China.

Dollar bills arranged sideways

A survey showing a sanguine New Zealand business sentiment helped partially support the New Zealand dollar against the greenback, which also slipped against the Australian dollar.

World markets have been on pins and needles in the past few months are concerns loom over the continuously escalating US-China trade dispute that threatens to stunt global economic growth as well as broader monetary policy among developed and emerging market economies.

The Fed is set to conclude its two-day policy meeting later on Wednesday. It is expected to raise interest rates for the eighth time since 2015. Meanwhile, investors are expecting on another rate increase before the end this years, even though the outlook for 2019 remains blurry.

Attention will be aimed on the policy outlook and on any announcements or remarks over the global trade dispute as well as the outlook for growth.

The dollar has gained from the hawkish rate outlook all year. However, in the past couple weeks, it has since been sluggish  with the improvement in other economies, like the euro zone,  that put those economies in a good place to start switching to tighter monetary policies.

The dollar index, which tracks the US dollar’s strength against a basket of six other major currencies, has shed around 3 percent since mid-August.

The index was practically sideways at 94.134 on Wednesday, hovering near a two-and-a-half month low of 93.814 reached on Friday.

Minori Uchida, who is MUFG Bank’s chief currency analyst, stated that risk appetite has somewhat increased as the overall impact of the US tariffs on Chinese goods stays relatively minimal.

The United States slapped new tariffs of 10 percent on $200 billion worth of Chinese goods last Monday, and it is expected to rise to 25 percent at the end of 2018.

“As long as it remains at that level, the impact won’t be so big. US stocks are rising. The risk-on sentiment is the main driver that’s weakening the yen,” said Uchida.

The Australian dollar gained 0.3 percent to $0.7272.

Meanwhile, the New Zealand dollar rose 0.4 percent to $0.6674 following a survey that showed an unexpected rise in business sentiment in September from a decade trough.

Firms’ assessment of their own activity also increased after a number of turbulent months, but they were still pessimistic overall.

Kumiko Ishikawa, who is a Sony senior analyst, said that investors were paying more attention to the discussions between US President Donald Trump and Japanese Prime Minister Shinzo Abe on the sidelines of the United Nations General Assembly meeting in New York later on Wednesday.

Japan and the United States have come up with a broad understanding over how to promote bilateral trade and may unveil specifics later in the day, according to Economy Minister Toshimitsu Motegi after a meeting with US Trade Representative Robert Lighthizer.

Motegi said that he hoped to provide more details after a scheduled meeting of the two countries’ leaders in New York.

The dollar exchange with the Japanese yen at 112.95, which is near a 10-week high of 113.02 yen reached earlier in the session.

The euro, on the other hand, was flat at $1.1767.

Peter Praet, who is the European Central Bank’s Chief Economist, said on Tuesday that there was nothing new in the comments from ECB President Mario Draghi, who indicated some confidence over euro zone inflation and wage growth.

The pound was a trifle lower at $1.3181, trading barely moved after rising about half a percent during the previous session.

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