US dollar lower against euro ahead of Fed meeting

[NEW YORK] The dollar slipped against the euro but gained on the pound Monday as weak inflation was in focus ahead of the Federal Reserve's first meeting since a December interest rate hike.

The greenback fell by more than a half cent to US$1.0851, while edging up slightly to US$1.4247 against the pound. Japan's yen was slightly down on the euro and higher on the dollar.

Markets are waiting to see what the policymakers of the Federal Open Market Committee might say about weaker-than-expected inflation after they raised the near-zero benchmark federal funds rate by a quarter percentage point in December.

In announcing the first rate increase in more than nine years, the FOMC expressed confidence in US growth.

Since then oil prices have plunged further, several Fed officials have expressed concerns about weak inflation, and European Central Bank chief Mario Draghi said last week the ECB could take action to strengthen growth and battle deflation by March.

The Fed is not expected to take any policy action at the two-day meeting that opens Tuesday, and instead was seen waiting a bit longer to see what US economic data tells it.

Nevertheless, the turmoil in global markets could force the FOMC to acknowledge more risks in front of the economy when it issues its policy statement Wednesday.

"With global equity markets down substantially over the last several weeks, the US dollar reaching new cyclical highs, and a clouded inflation outlook, the FOMC statement should strike a more cautious tone," said Deutsche Bank US economist Joseph LaVorgna in a client note.

However, he added: "It is too early for Fed officials to signal greater concern about the growth outlook."

AFP