FX round-up: Greenback firms ahead of Fed decision, pound shaky despite positive data

The US dollar was 0.17% stronger against a basket of currencies to 94.712 on Wednesday, while sterling lost some ground against it's US counterpart.

The Federal Open Market Committee (FOMC) is due to release it's latest policy statement at 1800 BST Wednesday evening. No change is expected from the US central bank and focus will quickly shift to Thursday when US President Donald Trump is due to appoint the next head of the Federal Reserve.

"The bottom line is the meeting is probably going to be a somewhat boring event for markets, overshadowed by the expected Fed chair decision," said Torsten Slok, chief international economist for Deutsche Bank.

Sam Bullard at Wells Fargo said, "If we get what we expect to get, which is basically more of the same of what we saw in the September statement, then yes, their gradual policy tightening plan is in place and all signs point to a December hike."

On the data front, figures out on Wednesday showed that the manufacturing industry did not expand as much as expected, with the US PMI coming in at 58.7, missing expectations of 59.5.

This was in contrast to positive employment data, with an ADP non-farm employment change figure of 235,000 beating analyst expectations of 202,000.

"We're in a very positive environment," said Andre Bakhos, at Janlyn Capital in Bernardsville, New Jersey.

"Economic data and earnings continue to remain a reason for optimism. The market will look for signs of a robust economy, and I think the momentum is in place." He said.

Closer to home, sterling received a positive boost in the morning on the back of better than expected manufaturing PMI data that came in at 56.3.

This helped the pound gain some ground against the dollar, with cable managing a day high of 1.3321, the highest level since mid October.

Choppy trading in the 1.3300 area ensued for the next few hours with sterling finally giving up as sellers ensued to push the pair 0.2% lower on the day to 1.3258.

Connor Campbell at Spreadex said in a note to clients, "It could be argued that this manufacturing beat gives the Bank of England hawks a bit more ammo heading into Thursday’s rate vote."

Sterling did, however, manage to gain some ground against the euro, up 0.04% to 1.1412, falling back slightly from the day high of 1.1451, it's highest level against the single currency since late September.

Despite Italy and France observing a bank holiday (All Saints Day), the euro did manage to see some action to the downside against the dollar as the pair traded 0.26% lower to 1.1615.

The Japanese yen also lost ground against the greenback in Wednesday trading, with the pair rallying 0.35% higher to 114.05, close to last week's high of 114.45 yen, tracking US Treasury yields higher.

"As tax reform expectations continue to rise - which we expect them to over the next month - that should be consistent with U.S. yields continuing to rise and dollar/yen pushing higher," said Sam Lynton-Brown, a currency strategist at BNP Paribas in London.

"We target a move to a 115 to 116 (yen) range in the near term," he said.