Dollar ticks up as traders wait on Fed for rate cut timing clues

TOKYO, Dec 13  – The dollar ticked up slightly versus major rivals on Wednesday, as traders braced for the conclusion of a Federal Reserve policy meeting that could provide clues on when the U.S. central bank will begin lowering interest rates.

China’s yuan edged down after an agenda-setting meeting of the country’s top leaders failed to deliver strong stimulus measures to shore up economic growth.

New Zealand’s dollar slumped after softer-than-expected inflation data suggested its central bank may not have to follow up on its threat to hike rates.

The U.S. dollar index, which gauges the currency against six leading counterparts, added 0.1% to 103.86 as of 0540 GMT, recouping a little of its 0.31% drop overnight.

The dollar rose 0.07% to 145.555 yen, following a 0.5% decline in the previous session. It rose slightly against the euro to USD 1.0789, after losing about 0.28% on Tuesday. It also edged up against sterling to USD 1.2554.

Fed officials will give updated economic and interest rate projections later in the day following a meeting where analysts and investors expect rates to stay on hold, and investors will focus on how the central bank sees the economy holding up.

In particular, investors will be watching to see if Fed Chair Jerome Powell pushes back against the prospect of interest rate cuts in the first half of 2024.

Recent signs have pointed to a soft landing, but data overnight showed consumer prices unexpectedly rising in November.

Traders currently price in a quarter point rate cut in May.

“The Fed hasn’t said they are cutting rates, they have said they are data dependent, but the market is already acting like rate cuts are baked in,” said James Kniveton, senior corporate FX dealer at Convera.

“If the Fed does push back tonight on those rate cut expectations, the dollar index may have an opportunity move back into the October range of 105-107.”

Later this week the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank will also decide policy, with Norway considered the only one which could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in FX markets.

The Bank of Japan’s (BOJ) policy meeting comes next week, and the yen has been volatile on speculation the central bank is drawing close to ending its negative rate policy. Rising hopes this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.

“If history is any guide, USD/JPY will trade heavily into next week’s BoJ and regardless whether there is a (policy) tweak, USD/JPY will likely rebound in the wake of their meeting,” Richard Franulovich, head of FX strategy at Westpac, wrote in a client note.

“Markets have been underwhelmed with every policy tweak and (BOJ Governor Kazuo) Ueda has dressed up each adjustment in a dovish narrative.”

New Zealand’s dollar slid 0.61% to USD 0.6097, and earlier touched $0.6094 for the first time since Nov. 28.

The Aussie edged down slightly to USD 0.65555.

The spot yuan was changing hands at 7.1831 per dollar, 69 pips weaker than the previous late session close.

Elsewhere, leading cryptocurrency bitcoin continued to consolidate around USD 41,000 after pulling back from the highest since April 2022 at USD 44,729, reached on Friday.

(Reporting by Kevin Buckland; Editing by Michael Perry and Jamie Freed)