SINGAPORE The dollar was near five-week lows on Wednesday ahead of the end of the U.S. Federal Reserve policy meeting, with investors awaiting clarity on the path the central bank will take in the wake of global banking turmoil.
The investors are not sure if the Fed will stick to its hawkish path to fight sticky inflation or pause interest rate hikes given recent problems with banks that included bankruptcy and last minute rescues.
The U.S. dollar index, measured against six peers, was at 103.22, just above the five-week low of 102.99 touched overnight. The euro was at $1.0767, hovering around a five-week high of $1.0789 scaled overnight.
Markets are pricing in about a 14 per cent chance of the Fed not increasing rates, with a roughly 86 per cent chance of a 25 basis point hike, according to the CME FedWatch tool. A month earlier, the market was pricing in a 24 per cent chance of a 50 basis point hike.
After high-profile U.S. banking failures earlier in the month and the rescue of Credit Suisse Group AG at the weekend, investor sentiment remained fragile with concerns over the outlook for the banking sector starting to relax.
Markets are increasingly comfortable with the idea that authorities have probably done enough to prevent a systemic banking crisis, said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.
It may be early days but the price action over the past 48 hours shows a change in mood by investors. The Fed meeting ends on Wednesday with the 2 p.m. EDT 1800 GMT release of a policy statement, followed by a news conference by Chair Jerome Powell about an hour later.
Catril said the Fed faced a difficult choice because of the strong labor market and the February inflation figures that were higher than predicted by many market watchers. Such circumstances would usually be ripe for a return to a 50 basis point hike if it were not for worries over financial stability, he said.
The yen was weakened by 0.04 per cent to 132.59 a dollar, while sterling was trading at $1.2221, up 0.06 per cent on the day.
The Australian dollar went up 0.04 per cent to $0.667, while the New Zealand dollar fell 0.16 per cent to $0.618.
The last price of cryptocurrencies fell by 0.14 per cent to $28,114. 13 is below a nine-month peak it touched on Monday. The price of ether fell 0.47 per cent to $1,793.