Dollar cements gains before Fed decision
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[December 13, 2017]
By Saikat Chatterjee
LONDON (Reuters) - Investors pressed the
pause button on a two-week rally in the dollar on Wednesday before the
outcome of a U.S. Federal Reserve meeting at which policymakers are
widely expected to raise interest rates for the third time this year.
Though traders expect the Fed to raise interest rates more next year
than bond markets are currently anticipating, uncertainty over the U.S.
tax bill and the Fed's outlook is keeping investors sidelined for the
moment. Some forecasters nevertheless see a bullish outlook for the
dollar at least in the first half of next year.
“Expect the Fed to continue to raise interest rates next year and should
see more than the market is currently pricing," said Nick D'Onofrio,
managing partner at North Asset Management, a hedge fund in London.
The dollar <.DXY> was flat against a trade-weighted basket of currencies
at 94.03 on Wednesday after rallying more than 1.5 percent so far this
month. Despite the bounce, the dollar is down nearly 8 percent so far
U.S. President Donald Trump's tax cut plans and other economic agenda
may be harder to push through following Tuesday's victory for Democrat
Doug Jones in the bitter fight for a U.S. Senate seat in deeply
The Republicans' reduced Senate majority after the race marked by sexual
misconduct accusations against their candidate Roy Moore also injects
some broader uncertainty into the legislative process.
Against the yen, the dollar slipped 0.2 percent to 113.35 yen <JPY=EBS>,
after rising to a four-week high of 113.75 yen on Tuesday.
The euro <EUR=EBS> was flat at $1.1745, after slipping to a three week
low of $1.17175 the previous day.
Investors are focusing more on the Fed's projection on the pace of its
rate hikes next year and policymakers' views on the outlook for
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U.S. one hundred dollar bills are seen in this picture illustration,
August 2, 2013. REUTERS/Kim Hong-Ji/Illustration/File Photo
The Fed will announce its decision on rates at 1900 GMT on Wednesday followed by
a statement. Chair Janet Yellen will hold a news conference at 1930 GMT.
Michael Sneyd, global head of FX strategy at BNP Paribas in London expects the
dollar to strengthen in the first half of the year by about 3 to 5 percent
against the euro.
"The overnight developments in Alabama are not a big concern for now as we
expect the legislation on the U.S. tax bill to pass before Doug Jones takes his
seat," Sneyd said who expects the Fed to raise interest rates three times more
Despite expectations of higher interest rates in the U.S. and consequently
widening interest rate differentials between the dollar and its rivals, markets
have focused on other factors such as the relative growth outlook when it comes
to the euro or the unfolding Brexit negotiations for sterling.
Elsewhere, the British pound edged higher to $1.3352 <GBP=D3> after data showed
pay had picked up a little speed in the three months to October. [GBP/]
The numbers showed workers' total earnings, excluding bonuses, rose by an annual
2.3 percent during that period, compared with 2.2 percent in the three months to
September. That beat economists' expectations for no improvement but was still
well below the inflation rate.
(Reporting by Saikat Chatterjee; Editing by Catherine Evans)
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