Dollar steady, markets quiet as investors await Fed

London

THE US dollar held firm on Wednesday (Dec 15), with currency markets quiet as investors waited to see if the US Federal Reserve would reinforce market expectations for rate hikes next year. The Fed's policy statement and economic projections are due at 1900 GMT (3am Singapore time).

Markets have been pricing for the Fed to end its bond-buying around March and then proceed with 1 or maybe 2 rate hikes in 2022. Any more than 2 rate hikes pencilled in for next year would be considered a hawkish surprise.

But the expectation of Fed hawkishness has kept the dollar strong in recent weeks - it has seen little movement since it hit 96.938 last month, its highest since July 2020.

Neil Jones, head of FX sales at Mizuho, said he expected the Fed to be more dovish than the market is pricing, leading to a dip in the dollar. "It will be interesting today to see if (the Omicron variant) has had a less hawkish impact on the Fed which cannot be ruled out," he said. "The chances of that occurring are probably higher than market expectations right now - it could be a more dovish tone from them than is currently factored in."

The dollar's moves were muted as investors waited for the meeting. It held firm in the Asian session, then slipped slightly as European markets opened, down less than 0.1 per cent on the day at 96.517.

Versus the Japanese yen, the dollar was up 0.2 per cent at 113.815.

Currency markets were little affected overnight by mixed economic data from China, which showed that factory output grew faster than expected but retail sales missed forecasts.

The euro was up 0.1 per cent at US$1.1265 ahead of a European Central Bank meeting on Thursday, where officials are expected to confirm that the bank's pandemic bond-buying programme will end next March. The pound briefly rose against the dollar after data showed that UK inflation jumped to its highest in more than 10 years in November. At 1142 GMT, it was up 0.2 per cent on the day at US$1.32505. The Australian dollar was up 0.3 per cent at US$0.7125. The New Zealand dollar was down 0.1 per cent at US$0.6735. REUTERS