Dollar largely flat ahead of Fed decision; euro edges higher
The U.S. dollar traded largely flat Tuesday ahead of the start of the last Federal Reserve meeting this year, while the Aussie dollar gained on hawkish shift from the Reserve Bank of Australia.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower to 99.042.
A "hawkish" Fed cut?
The Federal Reserve starts its latest two-day policy meeting later in the session, and is widely expected to confirm a rate cut of 25 basis points at the conclusion on Wednesday.
Fed funds futures are pricing in just short of a 90% chance of a Fed cut, according to CME’s FedWatch tool.
However, there still remains a great deal of uncertainty over what the policymakers will signal in terms of monetary easing in the new year, particularly given the likelihood that there will be the announcement shortly of a new person to head the U.S. central bank.
“There are now high expectations of a ’hawkish cut’ at Wednesday evening’s FOMC decision,” said analysts at ING, in a note. “With market pricing of further Fed easing still vulnerable, we suspect the dollar’s downside is limited into the Fed meeting.”
The most significant economic data release due later in the session will be the JOLTS job openings data, but this is unlikely to have much of an impact on today’s Fed discussions given the data is for October.
Euro helped by growth of German exports
In Europe, EUR/USD rose 0.1% to 1.1645 after German exports rose slightly in October, confounding expectations for a decline of 0.5%.
Exports from Europe’s biggest economy rose by 0.1% in October compared with the previous month, thanks to European Union trade, while shipments to the United States and China fell sharply.
This is another indication that the eurozone’s largest economy is slowly recovering, which should help the single currency going forward.
However, “failure to pass a social security budget in the French parliament today would be greeted negatively by markets and could re-insert some political risk back into the euro,” said ING.
GBP/USD gained 0.2% to 1.3348, retaining a degree of strength ahead of Friday’s growth data and next week’s Bank of England policy meeting.
Aussie dollar gains after RBA rate decision
In Asia, AUD/USD gained 0.3% to 0.6638, after the Reserve Bank of Australia kept its cash rate at 3.60%, a move widely anticipated by markets.
However, the RBA noted that risks to inflation had “tilted to the upside” and that stronger-than-expected private demand could add to capacity pressures -- prompting the bank to remain patient while assessing the durability of price pressures.
The RBA’s July-August-May easing cycle now appears on hold, at least for the near term, with the board opting against further cuts as underlying inflation remains sticky.
Source: Investing.com
