Dollar Steady Ahead of Fed Meeting; Traders Remain on Alert

The US dollar was trading flat on Tuesday as traders remained cautious and on alert ahead of the start of the Federal Reserve’s latest interest rate meeting. Here is what is moving the currency market today.

Dollar Quiet Ahead of Fed Meeting

The Federal Reserve begins its two-day policy meeting on Tuesday and is expected to leave rates unchanged on Wednesday.

The US central bank is expected to keep rates unchanged this week, although traders will be watching for any hints from Fed Chairman Jerome Powell on how soon policymakers might agree to cut rates during his press conference.

Weak inflation readings coupled with dovish comments from Fed policymakers have led markets to increase bets that September is likely to be the start of the rate cuts, with an expected reduction of around 25 basis points.

Likewise, Powell has the Jackson Hole meeting of central bankers in August to further guide the market, but if he does not give clear signals on a September cut this week, it is likely to lead to a strengthening of the dollar and US Treasuries.

Pound Falls on BoE Uncertainty

In Europe, GBP/USD was slightly down at 1.2857 ahead of Thursday’s Bank of England meeting.

There is a lot of uncertainty surrounding this meeting, as key policymakers have not spoken openly in two months due to the rules in the run-up to the general election earlier this month.

Policymakers have to weigh higher-than-estimated services price inflation against weak growth, with an unchanged resolution being a marginal favorite at the moment.

EUR/USD rose 0.1% to 1.0829 after the release of mixed Eurozone growth data.

France’s economy grew slightly stronger than estimated in the second quarter, by 0.3% in the three months ending in June.

However, this relatively positive news was overshadowed by a surprising contraction in Germany’s economy, which shrank by 0.1% in the second quarter compared to the previous three-month period.

Yen Loses Some of Its Gains

In Asia, USD/JPY rose about 0.5% to 154.78, and the yen gave up some of its gains ahead of the Bank of Japan’s meeting on Wednesday.

Analysts are divided on whether the central bank will keep interest rates unchanged or opt for a 10-15 basis point hike.

Besides interest rates, the Bank of Japan is expected to show signs of strength and end its quantitative easing policy. At its June meeting, the central bank stated that in July it would set out its plans to phase out its asset purchase program.

The USD/CNY was down 0.1% at 7.2496, near an eight-month high, amid continued concerns about slowing economic growth in China.