FX Roundup: Dollar falls ahead Fed meeting

The dollar fell against a basket of global currencies on Monday, with the US Federal Reserve forecast to raise interest rates by 25 basis points following a two-day policy meeting on 15-16 December.

At 1518 GMT, the dollar was seen extending losses against the yen by another 0.21% changing hands at JPY120.76. Meanwhile, the pound fell against the dollar to exchange at $1.5148 down 0.43%, while the euro rose 0.31% to change hands at $1.1020.

“At this stage, it is almost universally expected that, after a seven-year period at near-zero, the Fed will raise interest rates this Wednesday. Like everybody else, we anticipate a 25 basis point increase in the target range for the fed funds rate, taking it to between 0.25% and 0.50%,” said Capital Economics.

Commodity linked currency crosses saw a better session with the Australian dollar up 0.88% against its US counterpart exchanging at US$0.7252, while the New Zealand dollar rose a further 0.64% to change hands at US$0.6760. The greenback also fell 0.17% against the Canadian dollar exchanging at CAD$1.3733.

Kit Juckes, head of forex at Societe Generale, said, “History suggests there's a chance that the dollar will weaken rather than rally after the FOMC announcement - particularly against the yen. That's what it has done after the first rate hike in each of the last three cycles and this one will be accompanied by a well-flagged dovish statement.

“But if it makes sense that Japan, with its huge stock of net external assets, ‘wins' from post-hike dollar profit-taking, then it's also understandable that Turkey's historical reliance in portfolio capital inflows, has resulted in the lira weakening at the start of each of those Fed cycles.”

“That argues against simply assuming that the history of post-hike dollar correction can be extrapolated beyond the yen and perhaps the euro. CAD, badly beaten up last week, still looks cheap versus NZD and AUD to me, but I may have to be very patient.”

Finally, in Latin America, the dollar also traded higher against the Colombian peso (up 0.63%), Chilean peso (up 0.50%), and Brazilian real (up 0.50%) but fell against the Mexican peso (down 0.26%).