SINGAPORE, Sept 18 (Askume) – The dollar edged lower and the yen recouped some losses on Wednesday, as investors adjusted their positions in the last minutes ahead of a policy meeting that is likely to leave U.S. policy rates unchanged. The easing cycle.
The Federal Reserve is expected to cut interest rates for the first time in more than four years at 1800 GMT , with markets giving a 2/3 chance of a 50 basis point cut.
The dollar has fallen along with US interest rates since July and is currently at $1.1125 per euro, not far from this year’s lowest level of $1.1201. There is hope that interest rates may be cut by more than 100 basis points before Christmas.
The yen has gained more than 12% since July, with the Bank of Japan (which sets policy on Fridays) raising interest rates while the Federal Reserve looks set to cut rates.
The U.S. dollar rose nearly 0.7% to $141.41 on Wednesday, recouping some of its overnight losses. The yen rose 0.6% to 157.37 against the euro.
Elsewhere, the Australian dollar briefly touched a two-week high of $0.6773 against the US dollar, while rising milk prices provided support for the New Zealand dollar to $0.6202, although the direction remains uncertain ahead of the Fed meeting.
Traders said the Fed’s stance and the extent of rate cuts would also influence the foreign exchange market reaction.
“If the Fed takes a dovish stance enough, it usually weakens the dollar,” said Nathan Swamy, head of foreign exchange trading at Citigroup in Singapore.
But Swamy said if the Fed’s policy is too accommodative, it could lead to panic in the market as the economy shows a slowdown more than expected, putting risk-sensitive and emerging markets at risk.
After overnight data showed US retail sales unexpectedly rose by 0.1% in August, compared with expectations of a 0.2% contraction, the Atlanta Federal Reserve Bank’s GDPNow forecast was raised to 3% from 2.5%, which could raise the possibility of a slight interest in a rate cut by the Federal Reserve.
As Chinese markets resumed trading on Wednesday after the Mid-Autumn Festival holiday, the yuan traded within a stable range not seen since January. The currency was steady at 7.0975 against the dollar in early trade.
The pound has been the best-performing G10 currency this year, steady at $1.3164, having gained on signs of economic stability and steady inflation. British inflation data will be released later in the day. The Bank of England kept interest rates steady at 5% on Thursday, with a 35% chance of a rate cut.
Final European inflation data are also due soon, but they are not expected to be very different from the preliminary August figures, so all eyes will be on the Fed.
“The market is betting on a 41 basis point rate cut, which is a long way from any realistic competitor (25 basis points or 50 basis points), so volatility looks almost certain,” ANZ analysts said in a note to clients.
