On Tuesday, the dollar drifted from recent gains as the U.S. Federal Reserve prepares for its two-day policy meeting where it is expected to raise interest rates for the third time this year. The British pound and the Swedish krone headed gainers as investors attained positions prior to the Fed’s decision.
Investors have the Fed’s assessment of the health of the economy on watch, which may change the market’s views on future directions of borrowing costs. Bond markets forecast two additional rate increases in 2018, but Fed forecasters believe three is the lucky number.
“Although we do not expect (Fed chair) Janet Yellen to overly modify her choice of judicious language, (President (Donald Trump‘s) …tax cuts … could feasibly allow far greater conviction in the speed with which policy normalisation should proceed,” said Neil Mellor, senior currency strategist.
The dollar index remained stable at 93.80 after last week’s rise of more than 1 percent, its largest weekly gain since the end of October. Yet, the greenback is still down over 9 percent this year.
Sterling gained from a momentary boost from data that revealed British inflation surprisingly reached a six-year high last month, along with markets concentrating on Brexit negotiations. The pound hit a high of day of $1.3380 following the data prior to dipping back to $1.33, a gain of 0.2 percent on the day.
“Liquidity appears solid and any sterling upside has limits given the uncertainty before the Brexit deal,” said Neil Jones, Mizuho’s head of currency sales a London hedge fund.
The euro traded at $1.175, moving away from Monday’s intraday high of $1.1811.
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The Swedish krone rebounded following inflation increasing last month to the government’s 2 percent target, offering support to rate-setters and analysts that are certain that the central bank should terminate its bond purchases program by the end of the year. The currency gained almost a percent versus the U.S. dollar on Tuesday, ending the last two weeks drop of 3 percent.