Dollar on back foot before Fed, markets eye policy outlook
Tuesday,
18-Dec-2018
09:03 AM (IST)
The dollar remained under pressure on Tuesday as markets counted down to a crucial Federal Reserve meeting amid speculation it will soon hit the pause button to its monetary tightening cycle in the face of rising risks to global growth.A sell-off in equities overnight extended into the Asian morning as investors fretted over a drum roll of weak data globally, reinforcing bets the Fed's widely expected rate hike on Wednesday would usher in a slowdown, or even a pause, to three years steady rate increases.Senior Fed officials, including Fed Chairman Jerome Powell, have recently become more cautious about the policy outlook that underlined a shift in market sentiment from a few months ago on rising signs of cooling in the global economy.While the U.S. central bank's latest median dot plot projections from September indicated its willingness to raise rates three times in 2019, the interest rate futures market is pricing in only one more rate hike for 2019.This mismatch is largely due to the belief that higher U.S. borrowing costs will likely hurt U.S. growth and ultimately force the Fed to pause its monetary tightening path. The dollar index was flat at 97.1 after losing 0.4 percent on Monday.In a tweet overnight, U.S. President Donald Trump said that it was 'incredible' that the Fed is even considering raising rates given the global economic and political uncertainties. The markets, however, looked past those comments.The yen and the Swiss franc clocked gains of 0.5 percent each overnight and held firm versus the dollar in early Asian trade.The greenback lost 0.06 percent versus the offshore Chinese yuan , changing hands at 6.8957.The euro was also up marginally at $1.1350, having recovered all of its losses from Monday when it hit by weak euro zone data.Commodity currencies such as the Canadian dollar and Norwegian crown were under pressure as oil prices tumbled overnight on signs of oversupply in the United States and on demand concerns stoked by a slowing global economy.The Canadian dollar was fetching $1.3413 on the U.S. currency, down 0.06 percent.
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