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Dollar rises ahead of Fed decision

The US dollar is inching up ahead of the Federal Reserve’s monetary policy announcement later, in a sign that the currency’s recent clobbering might be taking a pause.

At pixel time, the US dollar index, which measures the greenback against a basket of its peers, was up 0.2 per cent at 94.2, its highest level for five days.

Interest rates are expected to remain unchanged at a range of 1 per cent to 1.25 per cent, though some analysts expect some shift in guidance from the Fed.

Kit Juckes at Société Générale said:

The highlight of the meeting will be whether or not the Fed decides to announce a start date for balance sheet normalization. We lean towards the Fed making the announcement at the September meeting, with an October start date.

We suspect that the Fed will opt to alter the language in the paragraph on the balance sheet, noting that it will begin ‘relatively soon’, thus confirming market expectations for a September announcement.

In addition, Mr Juckes notes that some signs of potential movement in President Trump’s tax agenda are helping:

The US healthcare reform debate is up and running, and with it the possibility of some form of fiscal package further down the road. Away from any (huge) concerns about what healthcare is going to look like in the future, this development is bad for Treasuries, and good for the dollar. Remember the reaction to President Trump’s arrival at the white House back in November? We’ve reversed all of that since then and while Europe’s improved, inflation’s failed to appear, over and over again, and a deluge of water has flowed under a long line of bridges since then, the basic message is the same – a significant tax package would be bad for bonds and good for the dollar.