Dollar gains on euro before Fed meeting

NEW YORK, Jan 29 – The dollar gained against the euro on Monday as investors prepared for the prospect that the Federal Reserve could push back against expectations of an imminent rate cut when it concludes its two-day meeting on Wednesday.

Traders have cut odds that the US central bank will reduce rates in March to 48%, from 89% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces a view that the US economy remains solid.

That also contrasts with a weaker economic outlook for European countries, which is making the single currency relatively less attractive.

“The macro picture in the US looks a lot better than the macro picture in European union countries and the eurozone in general,” said Helen Given, FX trader at Monex USA in Washington.

The Fed is expected to hold rates steady on Wednesday and investors will focus on comments from Fed Chairman Jerome Powell, after he indicated in December that the Fed is pivoting to a rate cutting cycle.

“We’ll probably see a bit of pushback on the last meeting,” said Given. “I’d expect that a lot of the dollar strength that we’re seeing today, and we should continue to see until that decision release on Wednesday, is coming from shifting expectations.”

The euro dipped 0.20% to USD 1.08290 and earlier reached USD 1.07955, the lowest since Dec. 13.

The European Central Bank on Thursday held interest rates at a record-high 4% and reaffirmed its commitment to fighting inflation even as the time to start easing borrowing costs approaches.

“ECB President Christine Lagarde emphasized during her press conference that the debate over rate cuts was premature but reiterated that borrowing costs could be lowered from the summer. Lagarde also did not lean against aggressive money market expectations of the ECB’s easing cycle,” said Win Thin, global head of currency strategy at Brown Bothers Harriman, in a note.

ECB policymakers speaking on Monday disagreed on the exact timing of a cut or the trigger for action.

Traders are now fully pricing a move in April, with almost 150 basis points of easing priced in for the year.

The dollar index =USD, which measures the US currency against six rivals, was last down 0.05% at 103.50. It earlier reached 103.82, matching last week’s high, which was the highest since Dec. 13.

The index fell in afternoon trading in line with Treasury yields after the US Treasury said it expects to borrow USD 760 bln in the first quarter, USD 55 bln lower than its October estimate.

Sterling was little changed on the day at USD 1.27050 ahead of the Bank of England’s policy announcement on Thursday.

The greenback fell 0.45% to 147.45 yen, but the Japanese currency is on course for a 4.5% decline in January as traders temper their expectations of when the Bank of Japan would exit from its ultra-loose policy.

Investors are also wary of growing geopolitical risks after three US service members were killed in an aerial drone attack on US forces in northeastern Jordan near the Syrian border.

Such uncertainties could provide the safe-haven yen with a temporary lift, analysts said.

In cryptocurrencies, Bitcoin gained 2.62% to USD 43,087.

(Reporting by Karen Brettell; Editing by Bernadette Baum and Deepa Babington)