NVDA Q3 Earnings Alert: Why our AI stock picker is still holding Nvidia stockRead More

FOREX-Dollar edges up, investors brace for FOMC

Published 12/16/2009, 06:04 AM
Updated 12/16/2009, 06:06 AM

* Dollar edges up, euro near 2-1/2-mth low before FOMC

* Focus on whether Fed statement will suggest QE wind down

* Aussie falls on GDP, Swedish crown pares gains after Riks

(Adds comment, details)

By Naomi Tajitsu

LONDON, Dec 16 (Reuters) - The dollar edged up against the euro on Wednesday, nearing a 2-1/2-month high as investors awaited a Federal Reserve policy statement for clues to when it may begin winding down its loose monetary policy.

The euro showed little reaction to improvements in the euro zone manufacturing and services sectors, while the Australian dollar fell after weak growth data prompted speculation the central bank may pause from raising interest rates.

Many analysts expect the U.S. central bank will stick to its pledge to keep interest rates at essentially zero for an "extended period" in its policy statement due at 1915 GMT, suggesting rates will not start rising until later in 2010.

Still, some in the market say a run of strong U.S. economic data shows the economy is crawling out of recession, prompting some anticipation the Fed may end fiscal stimulus measures soon.

This would be seen as the first step towards raising rates and as a positive for the dollar after the U.S. currency has suffered for most of the year on the view that other central banks will begin to raise rates before the Fed.

"The dollar has been moving higher on some expectations that the Fed might change its statement to suggest more rate rises over the next 12 months," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.

At the same time, he noted a risk that the Fed would stick to its usual statement, which may push the dollar lower.

By 1034 GMT, the euro was little changed on the day at $1.4550, after sliding to around $1.4510 in early European trade. The euro fell as low as $1.4503 on Tuesday, its weakest since early October.

Technical charts showed the single currency had made a decisive break below its 100-day moving average around $1.4650 for the first time since April. Such a move is often followed by additional weakness.

Traders also cited talk of options barriers around $1.4500, with the risk that players still long on the euro after its recent slide may unwind those positions before year-end.

The euro brushed off a preliminary reading of the German PMI, which showed both manufacturing and services indices rising more than expected in December. Euro zone manufacturing and services PMI also rose more than expected.

It also showed limited reaction to the European Central Bank's final 1-year liquidity operation at which banks borrowed 97 billion euros.

The euro has been stung by concerns about the health of euro zone banks after Austria said on Monday it would nationalise one of its major banks. The weak fiscal status of euro zone members, including Greece, also weighed on the single currency.

AUSSIE SUFFERS

The Swedish crown was at 10.435 per euro, retreating from the day's high 10.405 after Sweden's central bank held rates at 0.25 percent as expected.

The dollar index slipped 0.2 percent to 76.805, but stayed in range of a 2 1/2-month high of 77.092 hit the previous day. Against the yen, it was unchanged at 89.60 yen, pulling away from the day's low around 89.40 yen.

The Australian dollar fell 1.1 percent to $0.8956 after Australia's GDP grew by 0.2 percent in the third quarter, less than forecast, while dovish RBA remarks prompted investors to trim expectations for tightening next year.

Ahead of the FOMC statement, some analysts said the Fed may acknowledge improvements in the economy, including a much smaller-than-expected fall in U.S. non-farm payrolls last month, while adding that it may stop short of suggesting any policy changes as the economy remains fragile.

"The FOMC is likely to tweak the statement to note that conditions in financial markets have improved modestly since the last meeting," Barclays analysts said in a note.

"But the broader message should remain that the Fed does not expect to change its policy stance soon."

(Editing by Nigel Stephenson)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.