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Dollar grinds higher on hopes for tariff delay

London

THE US dollar clawed higher on Wednesday as investors awaited the outcome of the Federal Reserve meeting and drew some support from hopes that US President Donald Trump will delay the imposition of tariffs on Chinese goods.

The notable movers in foreign exchange markets were the Swedish kronor that surged after higher-than-expected inflation numbers, and the British pound, which shed 0.3 per cent after a poll showed the ruling Conservative Party's lead narrowing.

FX markets were broadly range-bound, however, with investors awaiting Thursday's British general election, a European Central Bank meeting and the Dec 15 trade deadline.

Wednesday saw little in the way of key economic data, with the big policy and political events of the next 48 hours the main focus for markets.

The dollar rose 0.2 per cent against a basket of currencies and 0.1 per cent versus the euro to US$1.108, helped by a Wall Street Journal report of officials from both the US and China saying the groundwork was being laid to push back the tariff deadline.

"The trade negotiations will be key. You could argue there is a degree of complacency here," said Neil Mellor, an FX analyst at BNY Mellon. Mr Mellor said he thought the Federal Reserve meeting would be a "damp squib", while Christine Lagarde's first policy meeting at ECB chief was unlikely to produce any fireworks.

Economic uncertainty stemming from the US-China trade war has prompted the US Federal Reserve to cut interest rates three times this year. It is almost unanimously expected to leave interest rates unchanged on Wednesday.

Sterling's recent rally came to a halt after the latest poll pointed to a tighter election race in Britain than many investors have expected. The pound was last down 0.3 per cent at US$1.312, while against the euro it was 0.2 per cent lower at 84.485 pence.

"With regards to both the UK election and US-China talks, markets have been leaning towards optimism recently. Therefore we need to be careful about market reactions if those expectations do not materialise," said Kyosuke Suzuki, director of foreign exchange at Societe Generale.

Sweden's kronor enjoyed a bounce after stronger than expected consumer price inflation data for November.

The euro fell 0.6 per cent versus the crown to 10.479 kronor, a 71/2 month high for the Swedish currency.

The dollar was unchanged against the Japanese yen at 108.75 The New Zealand dollar slipped 0.3 per cent to US$0.6526 as profit-taking overshadowed upbeat data and the promise of fiscal stimulus by Wellington. REUTERS