Dollar dips ahead of Fed’s rate decision

LONDON - Reuters

AFP photo

The dollar inched down on Dec. 14 in the run-in to the Federal Reserve’s policy statement later in the day, with an almost 1 percent fall this week showing minimal expectations the Fed will ramp up its forecasts for future rises in interest rates.

The Fed was seen as all but certain to raise its main rate by a quarter point to 0.50-0.75 percent. 

The latest policy statement and projections were scheduled to be released at 2 p.m. EST (19:00 GMT) with a press conference by Fed Chair Janet Yellen following at 2:30 p.m.

Talk among traders this week has focused on the risks of policymakers expressing concern at the dollar’s gains or alternatively ramping up the predicted pace of future rate hikes in response to U.S. President-elect Donald Trump’s spending plans.

The major investment banks are mainly upbeat on the dollar’s prospects for next year after a bullish month following Trump’s election. Higher inflation expectations have encouraged more bullish forecasts for U.S. rates next year, and Fed policymakers may play into that by raising their own predictions.

But the pullback this week points to doubts on any push past parity with the euro. Investors also seem more nervous about further weakening the market’s safe haven of choice, the yen, given a raft of political risks to global growth next year.

“Medium to long-term dollar strength is likely but it must not happen too quickly,” analysts from Germany’s Commerzbank said in a note to clients. 

“Euro-dollar parity over the next couple of months for example would be too much.”

Goldman Sachs strategists called for the dollar to rise after the decision.