Dollar firm as market seeks Fed hike outlook

Updated 2018-03-22 11:28:02

The dollar held firm against major currencies on Wednesday as traders look to whether the U.S. Federal Reserve will indicate faster monetary tightening this year, as the first rate increase of 2018 was almost unanimously expected to come later in the day.

The Canadian dollar and the Mexican peso gained after media reported that the US administration had dropped a contentious demand related to auto-content, removing a key roadblock to a deal for a new North American free-trade agreement.

The dollar index was steady at 90.28, after having risen to 90.446 on Tuesday, an almost three-week high.

The index has, however, broadly been in a holding pattern between 90.934 and 89.399 this month, waiting for clarity on whether the policy-setting Federal Open Market Committee (FOMC) will forecast four rate hikes this year, instead of the median three hikes seen in December's quarterly forecast.

Followed by the FOMC announcement at 2 am Thursday, Jerome Powell held his first news conference as Fed chief at 2:30 am.

"Markets have taken a very hawkish turn with respect to the FOMC in recent days. One big tell is that two-year yields and expected rates in Fed funds futures markets went up yesterday despite the absence of economic data and a seriously downbeat equity market," wrote Steven Englander, head of research at Rafiki Capital Management.

The two-year yield jumped to a nine and a half year high of 2.349 percent on Tuesday.

As the U.S. currency firmed, the euro traded at .2261, having fallen 0.78 percent on Tuesday and hitting a near three-week low of .2240.

Against the Japanese yen, the dollar stood at 106.46 yen, after Tuesday's gains of 0.41 percent, though trading was slow due to a public holiday in Japan.

The British pound was off Monday's one-month peak after UK inflation slowed more than expected in February, the first of several sets of data in a week when the Bank of England is expected to signal interest rates will rise in May.

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