TOKYO Reuters -- The U.S. dollar fell from near a one-week peak against major peers on Wednesday, with traders on tenterhooks before a looming Federal Reserve rate decision that should give clues on the future policy path.
The yen was outperformed, seeing a sudden burst of strength mid-morning Japan time, with traders on alert for possible intervention around the Fed meeting.
The dollar index - which gauges the greenback against a basket of six counterparts - fell by 0.14% to 111.33, but is still not far below Tuesday's high of 111.78, which was the strongest level since October 25.
The index dropped quickly in the European open only to recover those losses after U.S. data pointed to continued price pressures, dampening speculation of a Fed pivot this year. The U.S. job openings unexpectedly rose, suggesting wage growth remains elevated while construction spending staged a surprise rebound.
The Fed is expected to raise its benchmark interest rate by 75 basis points bps on Wednesday, the fourth such increase in a row. The futures market is split on the odds of a 75 or 50 bps increase for the December meeting, as has been suggested by Fed officials of a potential slowdown in the tightening pace.
Chris Weston, head of research at Pepperstone, wrote in a client note that he believes that putting the U.S. into a recession is a lesser evil than not tackling price pressures.
It seems highly unlikely that the Fed will want to promote a positive reaction in risky assets, and the risks to markets in my mind are skewed to a hawkish reaction to equity, bond yields and the USD lower. The dollar index has surged more than 15% this year as the Fed hiked rates hard, crushing other currencies and putting pressure on the global economy.
The yen has been particularly vulnerable to dollar strength, spurring the Ministry of Finance and Bank of Japan to intervene in September for the first time since 1998. Japanese authorities are widely considered to have waded in several times in October to pull the yen back from 32 year lows just shy of 152 per dollar, although they didn't confirm any action.
On Wednesday, the Japanese currency was suddenly jumped by half a yen to 147.4 per dollar. The dollar fell by 0.55% to 147.40 yen after it extended the gains.
Ray Attrill, head of FX strategy at National Australia Bank, said this doesn't look like intervention to me.
On the three occasions we know about the BOJ intervened in enormous size and repeatedly, and if we were seeing intervention now - unless the pattern changed - I would expect that we would see much more significant movements that would be continuing now. The euro went up by 0.15% to $0.9888, but was still close to the previous session's one-week low of $0.98535.
The pound rose by 0.17% to $1.1505, but was not far from Tuesday's one-week low of $1.14365.
The Bank of England announces its policy decision on Thursday, and markets expect a 75 bps increase there as well as a slowdown to a 50 bps pace in December.
The Australian dollar was close to a one-week low, and was not changed at $0.63945. The Reserve Bank of Australia opted to keep its rate hikes at 25 bps on Tuesday despite consumer inflation running at a 32 year high.
The kiwi dollar rose 0.16% to $0.58485, after an upbeat jobs report reinforced the case for a super-sized increase in interest rates this month from the Reserve Bank of New Zealand.