Dollar steady around one-week high, all eyes on Fed

LONDON: The dollar traded around one-week highs against a basket of major currencies on Wednesday, with moves limited in the countdown to an expected hike in U.S. interest rates later in the day. Another 2 percent fall in Brent crude prices sent the Norwegian crown a full percentage point lower and Canada’s dollar to the latest of a series of 11-1/2 year lows against its U.S. counterpart.

But moves on major currency pairs were subdued ahead of a Fed decision at 1900 GMT, widely expected to deliver its first rate increase in nearly a decade. Analysts from Citi, the FX market’s single biggest player and hedge funds’ partner of choice, said that positioning in the dollar against the euro has turned all but flat after a clearout over the past fortnight.

That suggests the action after the Fed’s move, a sea change in the shape of global monetary policy, is more likely to come on a handful of emerging currencies and in credit and other markets than on the big FX pairs. “Markets are going into the announcement expecting a rate hike but, on the surface at least, relatively relaxed that it is priced in,” said Kit Juckes, a strategist with France’s Societe Generale in London.

“If 10-year treasury yields stay close to today’s levels, I don’t see much of a move in the euro or yen. But I do think that in the long run there is enough momentum in the US economy for yields to edge higher and that will drag the Euro lower.”

By midday in London, the dollar was less than 0.1 percent higher versus a basket of major currencies at 98.174 .DXY, half a percent off Tuesday’s peak of 98.292, its highest since Dec. 9. Against the euro it was a touch higher at $1.0916, having hit its highest in a week a day earlier.

“There was the feeling at one point yesterday that some people were loading up on dollar longs again,” said a dealer with one bank in London. “It doesn’t feel like there is much chance (Fed chief Janet) Yellen could be more dovish than the market pricing suggests.” Against the yen, the greenback inched up 0.1 percent to 121.71 yen.

This month’s drop in the dollar versus yen and the euro’s rise against the dollar suggest that short-term players have pared back their long dollar positions, said a trader for a Japanese bank.

The crown was sent lower by speculation that further shocking falls in oil prices over the past few weeks might lead Norway’s central bank to cut interest rates next week in aid of propping up growth.

“We expect no change but there is a material risk of a cut,” Citi analyst Josh O’Byrne said.

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