The dollar eased Wednesday for the first time in seven sessions, but held near a one-week high as traders waited on the Federal Reserve's rate decision. EUR/USD stayed pinned near a one-month low of $1.1500, with the pound and yen also stuck near multi-week extremes ahead of central bank meetings in London and Tokyo.
The dollar eased on Wednesday for the first time in seven sessions, though it lingered close to its highest levels in over a week. Foreign exchange desks held a defensive posture ahead of the Fed's rate call. The Dollar Index, which tracks the greenback against six major currencies, was virtually flat around 99.59, pausing after a multi-day rally driven by bets on renewed U.S. tightening.
Euro pinned near one-month low
EUR/USD stayed flat on the day, hovering close to its lowest levels in nearly one month at $1.1500. Traders kept digesting the fallout from the European Central Bank's decision last Thursday to raise its benchmark deposit facility rate by 25 basis points to 2.50% to counter energy-driven inflation.
The pound also held flat, anchored around $1.3500 near its lowest levels in over a month, as London desks prepared for Thursday's Bank of England announcement. The yen inched up after hitting an over one-week low of 155.49 per dollar earlier in the session, with the dollar slipping to trade around 154.97 yen as markets positioned for the Bank of Japan's Friday meeting.
Warsh guidance in focus
A 25-basis-point Fed rate hike sits at a 92% probability, so desks are watching Chair Kevin Warsh's press conference instead. The question is whether Warsh frames the move as a one-off "insurance" step against triple-digit oil prices, or signals a sustained tightening path. A dovish, one-off framing could spark profit-taking on long-dollar bets, while hawkish guidance would reinforce the dollar's yield edge over its G4 peers into year-end.
Oil spike reinforces hawkish bets
Crude has spiked past $113 a barrel after attacks on Saudi Arabian pipeline infrastructure and Houthi strikes in the Red Sea, reinforcing the hawkish shift in rate expectations. According to Investing.com, analysts at ANZ noted that the Fed "normally raises rates at sequential meetings" when it tightens.
In the U.K., August consumer price inflation accelerated to 3.1% from 2.9% in July, while core inflation held at 2.6%. Swaps traders see a one-in-three chance of a BoE hike Thursday. Across the Pacific, traders assign an 80% chance the Bank of Japan raises its policy rate to 1.25% on Friday, with money markets pricing two further quarter-point BOJ hikes by the end of January.
Source: Investing.com
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