LONDON (Reuters) – The dollar edged up against the euro and hit a three-week high versus the yen on Wednesday ahead of a Federal Reserve policy announcement that investors will scan for clues on how many more U.S. rate hikes there will be this year.
The Fed concludes its two-day policy meeting later on Wednesday and is widely expected to hike rates for the second time this year.
Reports that Fed Chair Jerome Powell was considering holding a news conference and taking questions after every Fed meeting also supported the dollar as it raised expectations that the Fed could hike rates more often. The central bank currently holds a news conference after every other meeting.
Investors are focused on whether the Fed signals tightening policy four times in 2018, from the three times indicated earlier this year, after the world’s largest economy has expanded steadily.
Tighter monetary policy in the United States and reduced expectations of rate rises elsewhere sent the dollar on a six-week long rally, but that run has since fizzled.
Analysts are divided on whether the Fed meeting will further boost the dollar, with the focus set to shift to a European Central Bank policy meeting on Thursday.
“The FOMC (Federal Open Market Committee) continues to shift to a neutral policy stance from an accommodative one, and we expect the committee to remove the forward guidance on rates remaining below their longer-run rate. Gradual policy tightening is already well priced by the market, so we do not expect the dollar to benefit,” BNP Paribas analysts said.
The dollar index inched up 0.1 percent to 93.867, after rising 0.25 percent the previous day.
The greenback traded flat versus the euro at $1.1745, while gaining 0.2 percent against the yen to 110.58 yen after brushing 110.68, its highest since May 23.
Speculation that the ECB could signal its intention to unwind its massive bond purchasing program in 2018 lifted the euro to a three-week high of $1.1840 last week.
“Expectations were that the ECB will be willing to hasten policy normalisation,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
“However, I believe such expectations are overdone and the meeting could disappoint those hoping for hawkish rhetoric, which would explain the euro’s recent weakness.”
The British pound dipped 0.2 percent to $1.3350, unable to hold gains made overnight when it briefly rose to $1.3424 after British Prime Minister Theresa May saw off a rebellion in parliament over amendments to a bill for the country’s exit from the European Union next year.
UK inflation data is due later on Wednesday and Marshall Gittler, chief strategist at ACLS Global, said he expected “inflation data to encourage the bears further and send the pound lower.”
The Canadian dollar, which has fallen heavily in recent weeks on concerns an escalating trade dispute with the United States would hit its northern neighbour’s economy hard, fell another 0.2 percent to C$1.3040, not far from three month lows of C$1.3068.
Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Toby Chopra