Reuters – The dollar was flat on Tuesday after strong recent gains as the US Federal Reserve geared up for a two-day policy meeting at which it is widely expected to raise interest rates for the fifth time since late 2015.
Investors will be watching for the Fed’s assessment of the health of the economy as that might change the market’s views on the future path of borrowing costs. Bond markets anticipate two further rate hikes next year but Fed forecasters expect three.
“Although we do not expect (Fed chair) Janet Yellen to overly modify her choice of judicious language, (President (Donald Trump‘s) ...tax cuts ... could feasibly allow far greater conviction in the speed with which policy normalisation should proceed,” said Neil Mellor, senior currency strategist at BNY Mellon.
The dollar index held steady at 93.80 after rising more than 1% last week, its biggest weekly rise since the end of October. But it is still down more than 9% so far this year.
A Reuters poll published last week expects the dollar to remain on the back foot in the coming months and decline 2.5% against the euro over the next year to $1.22.
“Overall, we expect the dollar to remain broadly rangebound against the euro in the coming months in the absence of further dollar-positive stories,” said Morten Helt, a senior FX strategist at Danske Bank.
The euro changed hands at $1.1785, having pulled back from Monday’s intraday high of $1.1811.