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Dollar firm as investors eye Fed meeting

Dollar up

The euro last traded at $1.1265, while the pound languished at $1.13326

The dollar held its recent gains in early Asia trading on Wednesday as investors looked towards a key Federal Reserve policy meeting to see if it would reinforce growing market expectations for earlier rate rises next year.

The dollar index which measures the greenback against six major peers was at 96.557, having gained 0.5% so far this week in choppy trading. It is testing last week’s 96.954, which would be a two-week top.

The dollar’s gains have been broad-based.

The euro last traded at $1.1265, not far from $1.1184 hit in November, which was its lowest in over a year. The pound languished at $1.13326 as Britain grapples with rising cases of the Omicron variant of the new coronavirus.

But the Federal Reserve meeting due to wrap up later in the day stood out as the centrepiece of a week full of central bank meetings.

Kim Mundy, currency strategist at CBA, said currency markets were ‘taking a tiny break from Omicron’ even though it was ‘very much bubbling away in the background.’

It’s hard for it to be the dominant focus when you’ve got the FOMC, and the Bank of England and European Central Bank lining up to make policy decisions, said Mundy.

She said traders were watching the U.S. Federal Open Market Committee for two things: firstly whether they accelerate tapering of their bond buying programme, and secondly whether policymakers bring forward their projections for interest rate rises, in their so-called ‘dot plot’.

Markets have been pricing for the Fed to wrap up bond-buying around March and then proceed with one or maybe two rate hikes in 2022.

Elsewhere, a Reuters poll showed analysts have reversed earlier expectations that the Bank of England (BoE) will raise rates on Thursday, because of the spread of Omicron in Britain.

Markets currently expect the Fed to say it will taper its asset buying by between $25 billion-$30 billion a month from $15 billion currently.

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