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US dollar rises before Fed meeting

London

THE US dollar rose modestly on Wednesday before a widely anticipated Federal Reserve interest rate hike priced in by investors still on edge about a trade row between the US and China. The Fed is expected to raise interest rates for the eighth time since late 2015. Investors are also counting on another rate increase by the end of the year. The outlook for 2019 is less clear.

Focus will be on the central bank's policy outlook and any comments on the global trade dispute.

"We expect (the Fed) to signal future hikes are warranted, but more explicitly to acknowledge the downside risks associated with trade and international financial conditions," said Hans Redeker, global head of FX strategy at Morgan Stanley.

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The meeting could temporarily lift the US dollar, he added, but a long-term boost was unlikely.

The US dollar could also move if there are any noticeable changes in the "dot plots", according to Fawad Razaqzada, a market analyst at Forex.com in London. Fed officials' median projection on the number of rate increases is commonly referred to as its dot plot.

Global markets have been unsettled in the past few months because of a heated trade dispute between the world's two largest economies that has stoked uncertainty about the outlook for global growth.

China on Wednesday said that it will cut import tariffs for products including machinery and electrical equipment as the country braces for an escalating trade war with the US.

The cuts are expected to lower costs for consumers and companies by about 60 billion yuan (S$11.9 billion) this year.

After the announcement, the US dollar index - which measures the greenback against six major currencies - rose 0.2 per cent to trade at 94.283. It still remained within reach of a two-and-a-half-month low of 93.814 touched last Friday.

This year began with the US dollar retreating, but a hawkish rate outlook and the US-China trade dispute have made it a safe haven for investors. In recent weeks, though, it has lost ground as other economies, such as the eurozone, improved and moved closer to tightening monetary policy.

The US dollar index has slipped about 3 per cent since mid-August.

The euro traded down 0.2 per cent at US$1.1743. It had touched a three-and-a-half-month high on Monday after European Central Bank president Mario Draghi expressed confidence in eurozone inflation and wage growth. REUTERS