Greenback steady ahead of Fed decision; focus on UK Budget

THE US dollar held onto gains on Wednesday (Oct 28) after reaching a two-week high ahead of the Federal Reserve’s interest-rate decision, while sterling investors awaited UK Prime Minister’s Andy Burnham government’s first Budget, hoping it would avoid a heavy reliance on borrowing.

The week is packed with monetary policy decisions by central banks globally, as policymakers weigh the path ahead for interest rates against the backdrop of price pressures due to the Middle East conflict and ballooning sovereign debt costs.

Traders broadly expect no change in Fed monetary policy, after a series of Fed officials in recent weeks signalled the need to wait and watch for more signs of persistent price pressures.

However, they see a 78 per cent chance that the central bank could lift interest rates by at least 25 basis points in December, the CME Group’s FedWatch tool showed.

The euro was flat at US$1.1126, trading just above the May 2025 low it hit earlier in October, while against the yen, the dollar was steady at 157.89.

“A hold would likely be accompanied by a statement similar to the statement in September when the (Federal Open Markets Committee) hiked, underlining the fact that the economy remains resilient,” Derek Halpenny, head of research, global markets for Europe, Middle East and Africa and international securities at MUFG, said in a note.

“There is a risk that there could be some dissents and that would certainly be one signal of the leaning and would strengthen the market’s conviction of a hike in December.”

The dollar index, which measures the greenback’s strength against a basket of six other currencies, was trading at a two-week high of 102.37.

The yield on the US 10-year Treasury note was up one basis point at 5 per cent.

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The spotlight was on the British government’s budgetary plans, with Finance Minister John Healey expected to detail fiscal spending for the coming year at 1230 GMT.

The pound slipped 0.1 per cent to US$1.328 and was about 0.2 per cent lower versus the euro, but sterling was close to the 17-month high versus the euro hit in the previous session.

Investors will be keen to see how the government expects to raise revenue, with analysts expecting taxes on banks, gambling firms and online marketplaces.

“The expectation is that the UK is maybe a little bit more fiscally constrained than many of its European peers. So if the government doesn’t do anything too negative, there’s room for the market to be somewhat pleasantly surprised in this,” said Michael Leithead, head of fixed income at EFG Asset Management.

However, given the recent scrutiny around government debt, any significant reliance on borrowing could spark a sell-off in the currency and gilts.

Later in the day, the Canadian central bank was expected to raise its benchmark interest rate by at least 25 basis points in a pre-emptive move to stop energy-led inflation from spreading into the rest of the economy.

The Canadian dollar inched up 0.1 per cent to 1.403 per US dollar. The European Central Bank and the Bank of Japan are also expected to deliver monetary policy verdicts on Thursday and Friday, respectively, with both central banks expected to leave policy rates unchanged.

The New Zealand dollar sank as much as 1.3 per cent to US$0.5609 after the Reserve Bank of New Zealand held interest rates at 2.75 per cent, surprising a large majority of economists who had expected a rate hike.

In cryptocurrencies, bitcoin was 0.7 per cent higher at US$81,292.46, while ether climbed 0.9 per cent to US$2,362.49. REUTERS