Forex — Dollar Trickles Lower as Fed Outcome Looms

© Reuters. The dollar fell ahead of the Fed policy statement on Wednesday – The dollar fell against a basket of major currencies as economic data showed weakness in the U.S. housing sector ahead of a widely expected unchanged interest rate decision from Federal Open Market Committee on Wednesday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.13% to 91.50.

The dollar come under pressure after sales of previously owned homes in the US unexpectedly fell in August, as tight supply continued to weigh on housing activity.

Existing home sales declined 1.7% in August from the previous month to an annualised pace of 5.35m homes, the National Association of Realtors, said on Wednesday. Economists were expecting a 0.3% rise to 5.46m homes.

The data comes just hours ahead of the conclusion of Federal Open Market Committee (FOMC) two-day meeting which got underway on Tuesday amid expectations the policymaking FOMC will leave interest rates unchanged and announce plans to begin unwinding its $4.5tn bond portfolio.

As well as plans for balance sheet unwinding, the Fed’s Summary of Economic Projections and dot-plot are expected garner much of the attention, as investors are keen to assess whether the slowing pace of inflation has altered the central bank’s longer-term view on interest rates.

“The dollar would likely rally if the Fed were to reiterate the median expectation of another rate hike this year and three in 2018,” said Guy Stear, head of emerging markets strategy at Société Générale (PA:SOGN), in an note.

At the FOMC June meeting, the «dot plot,» part of the FOMC’s Summary of Economic Projections, indicated that the central bank saw rates rising to between 1.25% and 1.5% by the end of the 2017.

The dot plot shows where each participant in the meeting thinks the Fed funds rate should be at the end of the year, for the next few years, and in the longer run.

Sterling was one of the main beneficiaries of the slump in dollar rising to $1.3584, up 0.61%, against the greenback, following stronger-than-expected retail sales growth in August.

Safe-haven demand, meanwhile, remained subdued capping gains in the yen and Swiss franc in the wake of President Donald Trump’s threat to “totally destroy” North Korea if America was forced to defend itself or its allies.

USD/JPY fell 0.14% to Y111.44 while USD/CHF fell 0.15% to 0.9614.

EUR/USD tacked on 0.09% to $1.2005 while EUR/GBP fell 0.55% to £0.8834.

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