Forex-Dollar bides time ahead of expected Fed hike

The dollar held steady near multi-week highs on Wednesday ahead of a Federal Reserve decision that traders expect will mark the first in a series of possible U.S. interest rate hikes. The dollar has advanced this week, along with yields and energy prices, gaining the most against the yen `JPY=` and the New Zealand dollar `NZD=`. The yen touched a one-week low of 155.49 per dollar during the Asian session. Market participants are betting heavily that Fed policymakers will lift their benchmark rate by a quarter of a percentage point, to a 3.75%-4% range, and signal further tightening ahead. "Even though a hike is close to being fully priced, we could see some dollar strength (if they raise interest rates)," said Kirstine Kundby-Nielsen, senior FX analyst at Danske Bank. But the dollar gained traction in the last few sessions on expectations that even if President Donald Trump's Fed Chair pick, Kevin Warsh, was inclined to cut interest rates, he would first need to raise them a few times to demonstrate that the Fed is committed to curbing inflation fuelled by the Iran war and the resulting surge in energy prices. "If you end up getting a hike and Warsh doesn't vote for it, then you could get a setback in the dollar," said Danske Bank's Kundby-Nielsen. "There would be a focus on credibility." The yen has been in the midst of its most promising rally in months, supported by a hawkish shift in expectations for Japanese interest rates, joint intervention by Japan and the U.S. as well as speculation that Japanese investors are repatriating capital. Traders see an 80% chance that the Bank of Japan will hike rates on Friday, LSEG data show, and have priced in two 25-basis-point hikes by the end of January. "The yen's path will continue to depend heavily on interest rate differentials," David A. Meier, economist at Julius Baer, said in a research note. "We recently revised our USD/JPY forecasts to 155, reflecting some scepticism that the central bank can ultimately satisfy the pace of tightening currently priced in by markets," he added. A long rally in China's yuan `CNY=CFXS` has lost momentum at around 6.71 to the dollar, but the currency is holding its gains despite a widening gap between low Chinese yields and rates elsewhere. At $1.1536, the euro `EUR=` was not far from Monday's one-month low of $1.1523. Sterling `GBP=` was at $1.3470 after British inflation accelerated to a five-month high in August, a day before the Bank of England is expected to leave rates steady. The dollar index `=USD`, which measures the currency against major peers, was little changed at 99.67. Currency markets have been relatively subdued in recent weeks, while global bond yields have climbed as sovereign bonds moved in tandem leaving relative differences between countries' yields little changed.

Forex-Dollar bides time ahead of expected Fed hike

Dollar steady ahead of Fed decision

Warsh, credibility and the yen outlook

Euro and sterling stay near recent levels

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