Forex trends Wednesday: Dollar retreats ahead of closely watched Fed meeting

U.S. five dollar currency notes bills; taken September 2018.

The U.S. dollar retreated from recent highs on Tuesday ahead of the closely watched U.S. Federal Reserve meeting outcome due later on Wednesday.

While markets widely expect the Fed to hike rates at its meeting Wednesday, its statement will be closely watched for cues on the central bank’s outlook.

U.S. President Trump took to Twitter for yet another assault on Fed independence, urging the central bank to ignore data he called “meaningless numbers” and maintain rates in their 2.0 percent to 2.25 percent range.

Derek Holt, head of capital markets economics at Scotiabank, said in a note on Tuesday that may be self-interest on Trump’s part, with Bloomberg citing its own analysis that interest rate hikes cost the embattled president around US$5 million a year because he took out US$340 million in variable-rate loans from 2012-2015, an odd financial decision to make at a time when the Fed was already beginning to exit its ultra-loose policy.

Others noted a distinct lack of holiday cheer across markets.

“The Christmas spirit is absent in financial markets,” Kit Juckes, a strategist at Societe Generale, said in a note on Tuesday.

“The FOMC meeting will continue to loom large, and there’s sure to be speculation about how dovish they can sound while still hiking, or that they’ll bow to market pressure (and hope we don’t conclude it was political pressure that did the trick),” Juckes said.

He added that the euro was biased to fall ahead after its recent rally. Germany’s IFO data came in at a more than two-year low.

“There’s not much light at the end of the European economic tunnel at the moment and the German car industry in particular, is taking hits from every conceivable angle,” he said.

Currencies

The U.S. dollar index was at 96.98 at 7:05 A.M. SGT after climbing to levels as high as 97.15 from as low as 96.72 amid volatility in Tuesday’s session, according to ICE futures data.

The 10-year U.S. Treasury note yield was at 2.805 percent at 8:22 A.M. SGT after falling from as high as 2.850 percent in Tuesday’s session, according to Tullett Prebon data.

According to DZHI data:

The euro/dollar was at 1.1385 at 8:27 A.M. SGT after trading in a 1.1335 to 1.1402 range on Tuesday.

The British pound/dollar was at 1.2670 at 8:28 A.M. SGT after trading in a 1.2608 to 1.2706 range on Tuesday.

The dollar/yen was at 112.251 at 8:28 A.M. SGT after trading in a 112.22 to 112.849 range on Tuesday, off levels as high as 113.708 last week.

The dollar/yuan ended Tuesday at 6.8938 after trading in a 6.8869 to 6.9005 range during the session.

The dollar/Singapore dollar was at 1.3694 at 8:28 A.M. SGT after trading in a 1.3692 to 1.3730 range on Tuesday.

The dollar/Malaysian ringgit was at 4.1750 at Tuesday’s close after trading in a 4.1631 to 4.1780 range during the session.

The dollar/Indonesian rupiah ended Tuesday at 14,495 after trading in a 14,475 to 14,611 range during the session.

Get the Shenton Wire morning briefing in your inbox