Dollar holds fast, yen in shaky territory ahead of FOMC

By Brigid Riley

TOKYO (Reuters) – The dollar remained firm against a basket of peers on Wednesday ahead of a much-anticipated rate decision by the Federal Reserve later in the day, while the yen continued to hang close to a 10-month low.

The , which measures the greenback against a basket of rivals, stayed mostly flat at 105.17 as traders awaited the Fed’s rate decision.

Attention stayed fixed on the yen as U.S. and Japanese authorities heaped on fresh comments about the possibility of intervention.

Markets expect the Fed will almost certainly keep rates on hold at 5.25% to 5.50%, putting the focus on the central bank’s forward guidance.

Futures markets are pricing in a 30% likelihood of a quarter-point increase in November or 40% chance it will be in December, according to CME FedWatch tool.

“We expect the FOMC to retain its forecast of one extra 25 hike by year-end, though it will not follow through with it in our view,” said Carol Kong, economist and currency strategist at the Commonwealth Bank of Australia (OTC:).

Dollar/yen could see some upside pressure after a hawkish FOMC meeting, she added.

The yen last sat around 147.83 versus the greenback, off Tuesday’s low of 147.92 though hovering near the 10-month trough against the dollar ahead of the FOMC announcement.

Japan’s top financial diplomat, Masato Kanda, reiterated warnings on Wednesday, saying Japanese authorities are always in close communication on currencies with U.S. and overseas policymakers while keeping a close watch on market moves with a “high sense of urgency”.

Asked whether Washington would show understanding over another yen-buying intervention by Japan, U.S. Treasury Secretary Janet Yellen said overnight it “depends on the details” of the situation.

Speculation increased about a possible sooner-than-expected exit from the Bank of Japan’s ultra-loose policy, but the central bank will most likely keep interest rates ultra-low on Friday and reassure markets that monetary stimulus will stay for the time being amid economic uncertainty.

Elsewhere in Asia, the was largely unchanged after China met market expectations by keeping its benchmark lending rates unchanged on Wednesday, but later ticked down 0.1% to 7.3103 per dollar.

The Australian dollar, a proxy for China growth, fell nearly 0.1% in the Asian afternoon, while the New Zealand dollar was flat, down from Tuesday’s two-week high against the dollar.

The euro stood at $1.0679, and sterling hung slightly lower at $1.2388.

Market eyes will be on UK August CPI released on Wednesday, the last bit of inflation data before the Bank of England makes their rate decision on Thursday.

In cryptocurrencies, bitcoin hovered around $27,137, off a three-week high hit on Tuesday.

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