News: FOREX-Currencies take a breather as investors await Fed rate decision

The dollar was broadly flat against major currencies on Wednesday ahead of an eagerly-awaited Federal Reserve policy decision that investors hope will signal the end of the U.S. central bank's interest rate hiking cycle.

After a series of jumbo rate hikes in 2022 to tame inflation, the market is all but certain of a 25 basis points (bps) increase in interest rates later on Wednesday. The spotlight, however, will be on Fed Chair Jerome Powell's news conference as traders attempt to gauge how long the Fed is likely to stay hawkish.

The dollar index =USD , which measures the U.S. currency against six major peers, fell 0.029% at 102.06. It slipped 0.16% in the previous session, in part because of a report showing U.S. labour costs had increased in the fourth quarter at their slowest pace in a year.

The index has fallen for four straight months. As investors price in the Fed reaching the end of its rate-hike cycle, the index is far from the 20-year high of 114.78 it touched on Sept. 28.

"Recent progress on inflation has encouraged market participants to expect the Fed to quickly pivot from interest rate hikes to interest rate cuts," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Since signs of labour market loosening were limited, the Fed would likely pair a smaller rate hike this week with hawkish communication, she said. "The U.S. dollar can in turn enjoy a brief rally if markets reassess their expectations for a quick FOMC pivot."

Investor attention this week will also be on the monetary path taken by European Central Bank and Bank of England, each of which is expected to raise interest rates by 50 bps on Thursday.

The euro EUR=EBS up 0.04% to $1.0866, while sterling GBP=D3 was last trading at $1.2314, down 0.05% on the day. The yen JPY=EBS weakened 0.10% to 130.25 per dollar.

The Australian dollar AUD=D3 rose 0.18% to $0.707, while the kiwi NZD=D3 fell 0.05% to $0.644.

The Fed is due to announce its rate decision at 1900 GMT, with prices of Fed funds futures implying the Fed's benchmark rate will peak at 4.91% in June, then fall to 4.48% by December. FEDWATCH

The Fed raised interest rates by 50 bps in December after four successive 75 bps hikes. It said then that interest rates might need to be higher for longer to tame inflation.

"The expectations of a soft landing have picked up since the start of the year, relative to the rising recession bets seen in second half of last year," Saxo Markets strategists said.

"There is some reason to believe that Powell and team may be aiming to lengthen the hiking cycle in order to buy more time to assess both the incoming data and the impact of their previous aggressive rate hikes."

Beyond the main event of the Fed meeting, investors will also focus on ISM manufacturing and job opening data due on Wednesday that will further highlight the state of U.S. economy and labour market.

Data on Tuesday showed that house price growth slowed considerably in November, adding to growing signs of cooling inflation.

"There are signs of disinflation trend increasingly more entrenched in U.S. and this can potentially support the case for Fed to further calibrate its pace of tightening," said Christopher Wong, OCBC's currency strategist in Singapore.

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	Currency bid prices at 0505 GMT 

 Description	  RIC		 Last		   U.S. Close  Pct Change	 YTD Pct	 High Bid	Low Bid 
											  Previous				   Change				  
											  Session											
 Euro/Dollar	   EUR=EBS	$1.0866		$1.0861	 +0.06%		 +1.42%	  +1.0869	 +1.0853 
 Dollar/Yen		JPY=EBS	130.2100	   130.1000	+0.08%		 -0.78%	  +130.2600   +129.9950 
 Euro/Yen		 																			 
 Dollar/Swiss	  CHF=EBS	0.9160		 0.9162	  +0.01%		 -0.91%	  +0.9172	 +0.9160 
 Sterling/Dollar   GBP=D3	 1.2313		 1.2317	  +0.01%		 +1.86%	  +1.2325	 +1.2305 
 Dollar/Canadian   CAD=D3	 1.3311		 1.3307	  +0.03%		 -1.76%	  +1.3324	 +1.3299 
 Aussie/Dollar	 AUD=D3	 0.7067		 0.7054	  +0.19%		 +3.68%	  +0.7074	 +0.7038 
 NZ				NZD=D3	 0.6434		 0.6436	  -0.02%		 +1.35%	  +0.6444	 +0.6417 
 Dollar/Dollar																				   

All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX

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World FX rates	https://tmsnrt.rs/2RBWI5E 

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