Dollar treads water by six-month lows before Fed announcement

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By Alden Bentley, Alun John and Amanda Cooper

LONDON/NEW YORK (Reuters) - The dollar hovered near its lowest levels since June against the euro and pound on Wednesday, as traders awaited the Federal Reserve's interest rate decision, a day after tamer U.S. consumer inflation data that seemed to allow scope to slow its tightening pace.

The dollar index was nearly flat, having fallen Tuesday to it's weakest since June 16, in the wake of the November U.S. Consumer Price Index report showing a smaller-than-expected rise for a second straight month, and underlying consumer prices advancing by the least in 15 months.

"It's probably a pause because we have the Fed and then the three European central banks tomorrow," said Vassili Serebriakov, an FX strategist at UBS in New York. "It's quite a lot today just even after the Fed, so I think the markets are just going to be patiently waiting for the outcomes."

The Fed, after raising interest rates by 75 basis points at four successive meetings, is widely expected to deliver a 50 bp increase when it's two-day policy meeting concludes at 2 p.m. ET/1800 GMT.

Traders will then turn their focus to Thursday's meetings of the Bank of England and the European Central Bank, where consensus is also for a 50 bp rate hike. The Swiss National Bank also meets Thursday.

The euro rose 0.14% against the dollar to $1.0644, not far off a six-month intraday high of $1.0673 touched in the previous session after U.S. inflation figures.

The pound, which also hit a six-month high after the U.S. data, was up 0.16% at $1.23865 after a brief dip when UK inflation data too showed a sharper than expected fall.

But year-on-year inflation of 10.7%, compared to a predicted 10.9%, remains painfully high for British consumers.

With the Fed all but certain to do a smaller 50 bp cut today, amid betting that they might cut just 25 bp in Febrary, the main focus of Wednesday's meeting will be the Fed's quarterly "dot plot", which shows where policymakers expect rates to be at the end of each year, and remarks by chair Jerome Powell.

An increase in the median "dot" for the level at the end of 2023 from the 4.625% projection at the end of September is widely expected, but a key question is how much it will rise by.

"Our suspicion at this juncture is that Chair Powell has his work cut out in turning this momentum and any hawkish rhetoric is unlikely to get much traction in the face of yesterday's weak CPI print," Derek Halpenny, head of research, global markets at MUFG, said. "Any U.S. dollar strength on hawkish rhetoric could reverse quickly."

The Dollar Index has fallen 9% since hitting a 20-year high in September as expectations of high and rising U.S. interest rates, which fuelled dollar gains, have started to ease.

The dollar was 0.55% lower against the yen at 134.83, and eased 0.13% against the offshore Chinese yuan to 6.9554.

In Crypto, Bitcoin was up 1.43% at $18,027.

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Currency bid prices at 9:49AM (1449 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.8300 104.0800 -0.22% 8.537% +104.1300 +103.6600

Euro/Dollar $1.0645 $1.0630 +0.15% -6.36% +$1.0672 +$1.0619

Dollar/Yen 134.8700 135.5700 -0.52% +17.15% +135.7300 +134.5300

Euro/Yen 143.57 144.16 -0.41% +10.17% +144.2600 +143.5600

Dollar/Swiss 0.9252 0.9286 -0.39% +1.40% +0.9296 +0.9250

Sterling/Dollar $1.2382 $1.2365 +0.19% -8.40% +$1.2403 +$1.2345

Dollar/Canadian 1.3569 1.3544 +0.17% +7.30% +1.3579 +1.3531

Aussie/Dollar $0.6864 $0.6858 +0.18% -5.49% +$0.6881 +$0.6822

Euro/Swiss 0.9847 0.9873 -0.26% -5.03% +0.9890 +0.9850

Euro/Sterling 0.8596 0.8599 -0.03% +2.33% +0.8616 +0.8592

NZ $0.6442 $0.6463 -0.29% -5.85% +$0.6464 +$0.6434

Dollar/Dollar

Dollar/Norway 9.7450 9.7885 -0.50% +10.56% +9.8040 +9.7350

Euro/Norway 10.3779 10.3788 -0.01% +3.63% +10.4293 +10.3406

Dollar/Sweden 10.2129 10.2191 +0.30% +13.25% +10.2396 +10.1819

Euro/Sweden 10.8728 10.8402 +0.30% +6.24% +10.8850 +10.8405

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ