Dollar weakens ahead of conclusion of Federal Reserve meeting

Investing.com – The U.S. dollar slipped lower in early European trade Wednesday ahead of the conclusion of the Federal Reserve’s two-day policy meeting and after downbeat jobs data.

At 03:05 ET (07:05 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 101.420.

Traders appear to be adopting something of a defensive position ahead of the announcement from the Fed policymakers of their new monetary policy position, especially after Tuesday’s data showed fell for a third straight month in March.

The is widely expected to increase interest rates once more on Wednesday, and the question then is what happens next.

Indeed, markets are now expecting rate cuts towards the end of the year, given the signs of a softening labor market, concerns about the health of the country’s smaller banks and uncertainty over the debt ceiling.

“Inflation remains ‘unacceptably high’, but banking stresses are leading to a tightening of lending conditions, which will do more to slow the economy than the likely 25bp hike on Wednesday,” said analysts at ING, in a note. 

“While the Fed will leave the door ajar for further hikes, the need for higher policy rates is highly questionable. We expect 100bp of rate cuts before year-end.”

Elsewhere, rose 0.3% to 1.1030, after rising 0.2% overnight and not far below last week’s one-year high of 1.1096.

Data on Tuesday showed in the eurozone eased unexpectedly, but this is unlikely to stop the from hiking interest rates once more later this week given inflation remains too high for comfort.

Economists polled by Reuters expect a 25 bps rise to 3.25%, but ECB board member Isabel Schnabel said last week a 50 bps increase is not off the cards.

traded 0.3% higher at 1.2504, with the also expected to tighten next week as inflation remains highly elevated.

fell 0.4% to 135.93, recovering from a near two-month low as fears of a U.S. banking crisis drove up safe haven demand, while rose 0.1% to 0.6667, extending gains after the unexpected hike earlier this week.

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