 "US Fed Reserve, Fed Reserve")
The dollar edged up against the euro on Wednesday ahead of the conclusion of a Federal Reserve policy meeting that could offer some insight into when the U.S. central bank will begin lowering interest rates.
The main market focus will be on Fed officials' updated economic and interest rate projections, with the U.S. central bank expected to leave rates unchanged for the third consecutive meeting.
"The question is when the Fed cuts and why," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "The first few Fed cuts I think might just be attributed to trying to preserve the restrictiveness in the face of falling inflation."
If the Fed holds rates steady as inflation eases the gap between the two rates, known as the real interest rate, this can make monetary conditions more restrictive than policymakers intend.
That said, investors will also be watching to see if Fed Chair Jerome Powell dims the prospect of a rate cut early in the year. Traders are pricing in a 49% chance of a cut in March and a 79% probability in May, according to CME Group's FedWatch Tool.
The Fed will likely try to push the message that "policy is sufficiently restrictive, but no, we probably aren't going to be able to cut rates in Q1," Chandler said.
The U.S. dollar index, which gauges the performance of the currency against six others, was last up 0.13% on the day at 103.88.
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The Fed has insisted that it is data-dependent, but the market "is already acting like rate cuts are baked in", said James Kniveton, senior corporate FX dealer at Convera.
"If the Fed does push back tonight on those rate cut expectations, the dollar index may have an opportunity move back into the October range of 105-107," he said.
The dollar briefly dipped after data on Wednesday showed that U.S. producer prices were unexpectedly unchanged in November as a decline in the cost of energy products more than offset higher food prices.
It comes after U.S. consumer prices on Tuesday unexpectedly rose in November as a decline in the cost of gasoline was more than offset by increases in rents.
The European Central Bank, the Bank of England, the Norges Bank and Swiss National Bank are also due to meet on Thursday. The Norwegian central bank is considered to be the only one that could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in currency markets.
The euro dipped 0.06% to $1.0788. Sterling fell 0.44% to $1.2508 after data showed the British economy contracted in October, raising the risk of a recession and potentially complicating the efforts of the Bank of England (BoE) to stick to its anti-inflation stance against cutting rates when it meets on Thursday.
The dollar dipped 0.07% to 145.35 Japanese yen.
The Bank of Japan meets next week, and the yen has been volatile on speculation that the BOJ is drawing close to ending its negative rate policy. Rising hopes this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.
In cryptocurrencies, bitcoin gained 0.95% to $41,850, having retreated from Friday's 20-month high at $44,729.
US stocks inch up
U.S. stocks moved higher in muted trading and Treasury yields slipped on Wednesday as economic data affirmed inflation is cooling and investors bided their time ahead of the U.S. Federal Reserve's rate decision.
The S&P 500 and the Nasdaq were modestly higher while the Dow was essentially flat after notching 2023 closing highs in the previous session, while crude regained some ground in the wake of Tuesday's slide.
Economic data showed U.S. producer prices (PPI) were unchanged in November, providing further evidence that inflation continues to meander down toward the Fed's average annual 2% target.
The Federal Open Markets Committee (FOMC) is widely expected to leave the Fed funds target rate at 5.25%-5.50% when it wraps up its two-day monetary policy meeting at 2 p.m. EST.
But its summary economic projections, including its dot plot, will be parsed for clues regarding the central bank's intentions over the coming year, including the timing and frequency of any rate cuts.
"It's wait-and-see until the Fed, which is the last piece of big news of the year and people get a bit of a breather," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta.
"Then we'll see just how well positioned (investors) think they are after 2 o'clock," he added.
"It's all about what the dots are going to show and whether there will be a change in the statement that goes from a tightening bias to a neutral bias."
In a busy week for central banks, the European Central Bank and the Bank of England will announce policy decisions on Thursday.
The Dow Jones Industrial Average rose 13.33 points, or 0.04%, to 36,591.27, the S&P 500 gained 10.41 points, or 0.22%, to 4,654.11 and the Nasdaq Composite added 49.36 points, or 0.34%, to 14,582.76.
European shares rose, with a boost from chemical manufacturers, although investors shied away from risky bets ahead of the Fed decision.
The pan-European STOXX 600 index rose 0.17% and MSCI's gauge of stocks across the globe gained 0.18%.
Emerging market stocks lost 0.45%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.35% lower, while Japan's Nikkei rose 0.25%.
Treasury yields fell after producer prices cooled more than expected, supporting expectations that the Fed has reached the end of its tightening cycle.
Benchmark 10-year notes rose 13/32 in price to yield 4.1585%, from 4.206% late on Tuesday.
The 30-year bond rose 20/32 in price to yield 4.2682%, from 4.304% late on Tuesday.
The dollar inched up against a basket of world currencies.
The Japanese yen strengthened 0.13% versus the greenback to 145.26 per dollar, while Sterling was last trading at $1.2525, down 0.29% on the day.
Oil prices bounced back after tumbling to near six-month lows on Tuesday, driven by concerns of oversupply and waning demand.
U.S. crude rose 1.17% to $69.41 per barrel and Brent was last at $73.78, up 0.74% on the day.
Spot gold added 0.1% to $1,980.53 an ounce.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
