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Dollar Dips Before Fed, Pound Steadies amid Brexit Woes

2019-1-30 17:56:09Basics of Trading
Dollar Dips Before Fed, Pound Steadies amid Brexit Woes

The U.S. dollar dipped against a basket of its rivals on Wednesday ahead of the Federal Reserve’s policy decision, while the pound steadied after sliding in the previous session amid fresh concerns over the prospect of a no-deal Brexit.

The U.S. dollar index, a gauge of its value versus six major peers, was at 95.48 by 03.05 AM ET (08.05 GMT). The index hit a low of 95.30 on Tuesday, its lowest in two weeks.

The Fed was widely expected to leave interest rates on hold at the conclusion of its two day policy meeting later in the day, after raising them four times last year.

That means that attention will be focused on Chairman Jerome Powell's press conference and on the latest update to the Fed’s policy outlook. Recent dovish-sounding comments from officials have pointed to a slower pace of rate increases this year amid concerns over slowing global growth and shaky financial markets.

Traders are pricing in only a slight chance of one rate increase for 2019 as a whole, though most economists polled by Reuters last week still expect two, in the second and fourth quarters.

“The Fed is widely expected to stand pat on policy. But the dollar could face pressure if the Fed opts to highlight negative effects of the U.S. government shutdown in its statements,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

Markets were also focused on U.S.-Sino trade talks in Washington on Wednesday and Thursday, while the closely-watched U.S. jobs report will be released on Friday.

The dollar slid lower against the yen, with USD/JPY touching an overnight low of 109.22.

The pound firmed, with GBP/USD last at 1.3074 after dropping 0.63% late Tuesday after the House of Commons rejected a proposal to potentially avoid a no-deal Brexit. Britain is due to leave the EU on March 29.

“It is difficult to tell what’s next for the pound. But the March 29 Brexit deadline will likely be extended, and the focal point is on when and how such an extension is decided upon,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Sterling was flat against the euro, with EUR/GBP changing hands at 0.8742.

The single currency was little changed against the greenback, with EUR/USD at 1.1430 after touching a two-week high of 1.1449 overnight.