Wed Sep 18 03:36:37 UTC 2024: ## Dollar Weavers Ahead of Fed Meeting, Yen Recovers Ground
**SINGAPORE** – The dollar fluctuated on Wednesday as investors made final adjustments to their positions ahead of the Federal Reserve’s policy meeting, widely expected to mark the start of a US easing cycle. The Fed is set to announce its decision at 1800 GMT, with markets pricing in a 2/3 probability of a 50 basis point rate cut – the first in over four years.
Anticipation of US easing has already sent the dollar and US yields lower since July. The dollar, currently trading at $1.1125 per euro, is close to its year-low of $1.1201, with over 100 basis points of rate cuts priced in by Christmas.
Conversely, the Japanese yen has been on an upward trajectory, gaining over 12% since July, driven by the Bank of Japan’s interest rate hikes, coinciding with the Fed’s upcoming cuts. The yen strengthened by about 0.7% to 141.41 per dollar on Wednesday, recovering some of the previous day’s losses. It also gained 0.6% against the euro, reaching 157.37 per euro.
Elsewhere, the Australian dollar briefly touched a two-week high at $0.6773, while the New Zealand dollar, boosted by rising milk prices, reached $0.6202. However, trading remained tentative ahead of the Fed’s meeting.
Analysts predict the Fed’s tone and the size of the rate cut will significantly impact the foreign exchange market. “A dovish Fed on a substantial easing path should generally lead to a weaker dollar,” said Nathan Swami, head of currency trading at Citi in Singapore.
However, Swami cautioned that an extremely dovish Fed, hinting at a more severe economic downturn than expected, could spook markets, leading to headwinds for risk-sensitive and emerging market currencies.
Overnight data showing a slight increase in US retail sales in August, contrary to forecasts, and the Atlanta Fed’s GDPNow estimate rising to 3% from 2.5% might strengthen the argument for a smaller Fed cut.
China’s markets resumed trading after the mid-autumn festival break with the yuan’s trading band fixed at its strongest since January. The currency remained steady at 7.0975 per dollar in early trade.
Sterling, the best performing G10 currency this year, held steady at $1.3164, bolstered by signs of a stabilizing economy and persistent inflation. British inflation data is expected later today, while the Bank of England is likely to keep interest rates on hold at 5% on Thursday, with a 35% chance of a cut.
With markets betting on 41bp of rate cuts – a figure far from the realistic contenders of 25bp or 50bp – analysts at ANZ Bank anticipate volatility in the market.
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