FX Roundup: Dollar posts marginal gains ahead of Fed announcement

The dollar posted marginal gains against a basket of global currencies on Wednesday, with the US Federal Reserve poised to end its two-day policy meeting with a possible interest rate hike of 25 basis points.

At 1452 GMT, the dollar was up against the yen by 0.10% changing hands at JPY121.79. Meanwhile, the pound was broadly flat against the greenback exchanging at $1.5040 and the euro fell a mere 0.03% to change hands at $1.0931.

Kit Juckes, head of forex at Societe Generale, said: “We've waited so long for a Fed cut that the initial reaction may be meaningless. Beyond the very short term however, the US economy will go on growing, the Fed will hike further, and the dollar will rally through 2016.

"Markets are going into the final Fed announcement of 2015 expecting a rate hike but, on the surface at least, relatively relaxed that it is priced in. Oil prices are close to their lows but have found some temporary stability. Asian equity indices have bounced. 2-year Treasury yields are higher - at 97 basis points this morning - but 10-year yields at 2.26 are merely trading within their recent range - just below their average level of the last five years.”

Commodity-linked currency crosses were in mixed territory with the Australian dollar up 0.18% against its US counterpart exchanging at US$0.7205. Meanwhile, the New Zealand dollar was down 0.06% changing hands at US$0.6763. The greenback notched decent gains against the Canadian dollar exchanging at CAD$1.3781, up 0.36% in early trading stateside.

Jane Foley, senior FX strategist at Rabobank, said, “While the Bank of Canada may not be preparing to loosen policy again this cycle, the fact that the Fed is expected [today] to start tightening suggests that interest rate differentials should weigh on the CAD versus USD.

"Additionally, the continued weakness of commodities and the correlation between the CAD and the oil price suggests that the CAD is set to remain on the back foot. We see USD/CAD at 1.38 on a one to three month view.”

Finally, in Latin America, the dollar also traded higher against selected crosses included the Colombian peso (up 0.11%) and Brazilian Real (up 2.12%).