The dollar slipped on Wednesday as investors awaited a Federal Reserve policy decision amid speculation it might indicate a slowdown in future rate hikes. The central bank will release its policy statement at 2 p.m. EDT (1800 GMT), with investors widely expecting a 75 basis points (bps) rate hike, the fourth such increase in a row. But for the December meeting, the futures market is split on the odds of a 75- or 50-bps increase.
The dollar index – which gauges the greenback against a basket of six counterparts that includes the yen, euro and sterling – eased 0.2% to 111.27, but was not far below Tuesday’s high of 111.78, the strongest level since Oct. 25. “The market will be looking for signs of a potential slowdown in the pace of hikes at the December meeting, especially in (Fed Chair Jerome) Powell’s press conference … It will be a difficult balance to strike for Powell,” said Daria Parkhomenko, FX strategist at RBC Capital Markets.
“We think the Fed will want to maintain optionality of hiking 50 bps or 75 bps in December, as there are still another two CPI (inflation) reports and two NFP (non-farm payroll report) releases ahead of that meeting,” she added. Against the weakening dollar, the euro and sterling edged up to $0.9890 and $1.1502, respectively. The Bank of England announces its policy decision on Thursday, and markets expect a 75-bps increase there as well, followed by a slowdown to a 50-bps pace in December. The risk-sensitive Australian and New Zealand dollars rose strongly, buoyed by a rally in Chinese equity markets as speculation started to build about an economic reopening.
