Today the U.S. dollar fell from a one-week high compared to key rivals as traders waited anxiously for the Federal Reserve's impending rate decision, which might also provide hints about the direction of future policy.
With speculators on the lookout for potential action around the Fed meeting, the yen outperformed, experiencing a surprise surge of strength in the middle of the morning Japan time. The recovery in Chinese equity markets helped the risk-averse Australian and New Zealand dollars rise sharply as well.
DXY
- which compares the value of the dollar to a basket of six currencies, including the yen, the euro, and the pound sterling - fell 0.14% to 111.32 but remained close to Tuesday's high of 111.78, the highest point since Oct. 25.
The Fed is generally anticipated by investors to boost its benchmark interest rate by 75 basis points (bps) on Wednesday, marking the fourth consecutive hike.
But with recent comments from Fed members suggesting a probable slowdown in the tightening pace, the futures market is divided on the probability of a 75- or 50-bps hike for the December meeting.
(FEDWATCH)
According to the Fed, a U.S. recession is still preferable to failing to address persistent pricing pressures, according to Chris Weston, head of research at Pepperstone.
The risks to markets, in my opinion, are skewed to a hawkish reaction — stock up, bond rates up, and the USD down — and it seems highly improbable that the Fed will wish to support a positive reaction in risky assets.
Due to the Fed's aggressive rate hikes this year, which have devalued other currencies and put pressure on the global economy, the dollar index has increased by more than 15%.
Yen Leaps
The Ministry of Finance and Bank of Japan intervened to boost the currency in September for the first time since 1998 because USDJPY has been particularly susceptible to a strong dollar.
Although they declined to disclose any intervention, it is widely believed that Japanese officials intervened repeatedly again in October to pull the yen down from 32-year lows just shy of 152 per dollar.
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