Dollar lays in wait for Fed meeting that could swing it either way

MarketWatch –  The dollar was slightly lower against the yen and the euro in rangebound Asia trade Tuesday, as many investors refrained from making moves ahead of the Federal Reserve’s policy meeting this week.

The greenback USDJPY, -0.16% was at ¥120.95, compared with ¥121.00 late Monday in New York.

The U.S. currency was also weaker against the euro EURUSD, +0.3821% which gained to $1.1022 midday from $1.0986 late Monday. The common currency EURJPY, +0.23% was at ¥133.36 from ¥132.92.
The WSJ Dollar Index BUXX, -0.21% a measure of the dollar against a basket of major currencies, was down 0.2% at 89.47.

Many market participants have already increased their bets that the Fed would start raising rates. But concerns about a slow pace of U.S. rate increase next year which the Fed policymakers may signal after they conclude two-day meeting Wednesday are keeping a lid on the dollar’s upside momentum.

“Investors are just waiting (for the Fed decision). They are waiting on expectation that (the Fed is) almost certain to raise rates,” said Marito Ueda, director of FX Prime byGMO. But with investors keeping close eyes on the future tempo of the rate hike, “it’s difficult to predict which direction the dollar would go” after the Fed decision, he said.

“There may be a downside risk” for the dollar, given still remaining dollar long positions, said Ueda, adding that he “would not be surprised to see the dollar fall to ¥118.50.”

Meanwhile, investors also need to keenly watch the future path for the rate to gauge how those who have already closed out the dollar long position would act after the Fed meeting. “So that investors would find it difficult to go ahead with (the dollar) buying,” he said.

Daiwa Securities senior FX strategist Yukio Ishizuki said he will keep eyes on the new “dot plot” of Fed policymakers’ predictions for the level of the future rates. “I think the FOMC will likely provide extremely cautious outlook,” in what may give a certain stability to the market volatility, said Mr. Ishizuki. “Looking at the U.S. economy, the situation doesn’t enable (the Fed) to keep knocking up rates,” he said.

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