Dollar keeps tight ranges as traders await Fed policy

by Jonathan Adams
Dollar

Markets are currently pricing in a 46.6% probability that the Fed will begin cutting in March, declining from 73.4% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces views that economic growth remains strong

The dollar held narrow ranges against its major rivals on Tuesday, as traders awaited the Fed’s monetary policy decision for clues on when the U.S. central bank might cut rates.

Meanwhile, jobs opening data from the U.S. Department of Labor Statistics due later in the day will act as a preview to the payroll report to be released on Friday.

The dollar was stable in the Asian morning, with market participants moving cautiously ahead of the two-day FOMC meeting that starts on Tuesday.

While the Federal Reserve is expected to hold interest rates, the focus will be on the tone that Fed Chair Jerome Powell strikes at the press conference on Wednesday and any hints of rate cuts in the near future.

Markets are currently pricing in a 46.6% probability that the Fed will begin cutting in March, declining from 73.4% a month ago, as per the CME Group’s FedWatch Tool, as data reinforces views that economic growth remains strong.

I suspect that the FOMC meeting will not be as dovish as current market pricing indicates, said Matt Simpson, senior market analyst at City Index.

If recent Fed comments are anything to go by, the Federal Reserve is unlikely to release a dove into the crowd – and that risks a bounce for the U.S. dollar and yields, he added.

U.S. job opening figures on Tuesday will start a week of domestic jobs data, culminating in a key U.S. payrolls report for January on Friday. The data will give another indication of whether the country’s economy remains strong after the Fed’s aggressive hiking campaign.

The euro zone will also offer another peek under the economic hood with flash Gross Domestic Product data for the fourth quarter published on Tuesday, but expectations are for a much weaker outlook than its American counterpart.

Meanwhile, ECB policymakers on Monday disagreed on the exact timing of a cut or the trigger for action, although that has not stopped traders from fully pricing a move in April.

The euro was mostly unchanged at $1.0838.

Sterling was last trading at $1.2716, holding firm ahead of the BoE’s monetary policy meeting this week.

Elsewhere, the greenback gave up 0.15% against the yen at 147.24 per dollar.

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