Dollar Edges Lower; Traders Look for Pivot at Fed Meeting

By Peter Nurse

Investing.com – The U.S. dollar weakened in early European trade Tuesday as traders weighed the likelihood that the Federal Reserve signals a less aggressive interest rate tightening path at the end of its latest policy meeting on Wednesday.

At 03:55 ET (07:55 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.4% lower at 110.993, retreating from a two-decade high of 114.78 at the end of September.

The is widely expected to deliver another 75 basis point rate hike after the conclusion of its latest policy-setting meeting on Wednesday, its fourth such increase in a row.

However, the size of December’s hike is open to debate, with expectations growing that signs of economic weakness will persuade the Fed policymakers to agree to a smaller rate hike, probably of 50 basis points.

The unexpectedly slowed its pace of rate increases last week, lifting its benchmark overnight lending rate by 50 basis points, instead of the three-quarter move expected, while the raised interest rates by just 25 basis points earlier Tuesday, even as it hiked its inflation forecast and trimmed its GDP outlook.

rose 0.3% to 0.6420, paring earlier sharp gains amid concerns the central bank was growing lax on inflation after recent data showed that grew by a more than expected 7.3% to a 32-year high in the third quarter.

rose 0.3% to 0.9916, with pressure remaining on the to continue raising interest rates, following last week’s 75 basis points hike, after Monday’s data showed came in at 10.7% in October, a new record.

However, “with global growth under pressure from tighter rates and a misfiring Chinese economy, we think the Eurozone and the euro will continue to struggle. That is why last Thursday’s high of 1.0089 in EUR/USD could have been significant,” said analysts at ING, in a note.

“A close back under the 0.9900/9910 area this week would support our preferred view of EUR/USD retesting the lows near 0.95.”

rose 0.3% to 1.1507, ahead of Thursday’s meeting, which is widely expected to result in another increase in interest rates with inflation running at .

fell 0.5% to 147.97, after Japanese authorities confirmed that the country spent a record $42.8 billion on currency intervention this month to prop up the yen.

Finance Minister Shunichi Suzuki stated Tuesday, again, that authorities are closely watching market moves and will not tolerate “excessive currency moves driven by speculative trading”.

fell 0.2% to 7.2889, retreating from a near 15-year high, helped by a general improvement in risk sentiment, even as the central bank fixed the official guidance rate above 7.2 for the first time since the global financial crisis of 2008.

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