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US dollar holds steady as market braces for Fed interest rate decision

currency-newsUS dollar holds steady as market braces for Fed interest rate decision
The US dollar was mostly rangebound on Tuesday as markets awaited the conclusion of the Federal Reserve’s December policy meeting later this evening.

Meanwhile trade in the pound is mixed so far this morning, with GBP/EUR stable at €1.1765 and GBP/USD buoyed at $1.3262. GBP/CAD is rangebound at C$1.7043, while GBP/AUD and GBP/NZD hold steady at AU$1.8607 and NZ$1.9656, respectively.

Looking ahead, will a hawkish policy decision from the Fed help to turbocharge the US dollar today?

What’s been happening?

The US dollar stuck to a narrow range yesterday as USD investors were reluctant to make any aggressive bets ahead of the Fed’s latest interest rate decision.

This is in spite of the latest US producer price index reporting a much stronger-than-expected appreciation of prices last month.

The weakness of USD exchange rates allowed the euro to creep higher on Tuesday, thanks to the strong negative correlation between the worlds most traded currency pairing.

The pound, meanwhile, edged higher on Tuesday following the release of the UK’s latest jobs report, after it revealed domestic unemployment continued to drop in October, although these gains were tempered somewhat by some gloomy Covid headlines from the UK.

What’s coming up?

Centre stage today will undoubtedly be the delivery of the Fed's latest interest rate decision later this evening.

If the Fed announces it will accelerate its tapering timeline, then we could see the US dollar soar today as this is likely to see USD investors bring forward their expectations for the Fed’s next rate hike.

Also potentially influencing the US dollar this afternoon will be the release of the latest US retail sales figures. Will a slowing of sales growth last month exert some modest pressure on the ‘greenback’?

In the meantime, the publication of the UK’s consumer price index may underpin the pound this morning as a stronger-than-expected surge in domestic inflation last month could been seen as a reason for the Bank of England (BoE) to still hike interest rates this month.

Finally in the absence of any notable data, the euro may struggle for direction today, particularly ahead of the European Central Bank’s (ECB) rate decision tomorrow.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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