Currencies

Dollar steady as traders await clarity on Fed rate hike path

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The U.S. was steady against a basket of major currencies on Tuesday on uncertainty over whether the U.S. Federal Reserve would signal a slow or fast pace of interest rate increases at the end of a closely-watched policy meeting.

The Fed is widely expected to hike interest rates on Wednesday. It is less clear, however, if the central bank will indicate a more cautious pace of rate increases given a recent surge in Treasury yields and gains in the dollar or a faster pace on greater confidence that U.S. economic growth will accelerate.

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As of September, Fed officials' median projection was for two rate increases next year. A rate increase this week would be the first since last December and only the second since the 2007-2009 financial crisis.

"Understandably, the market is in a little bit of a holding pattern" ahead of the Fed's policy statement, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.

Franulovich said the Fed could signal a "dovish hike," or a rate hike combined with a policy statement that alludes to recent strength in the dollar and higher U.S. yields as a potential constraint on growth, or a "hawkish hike" where the Fed raises rates and emphasizes faster growth.

The dollar index, which measures the greenback against a basket of six major currencies, rallied nearly 4 percent between the Nov. 8 U.S. presidential election and last Friday. Benchmark 10-year Treasury yields hit 2.528 percent on Monday, their highest level in more than two years.

Those moves have largely come about on expectations that U.S. President-elect Donald Trump will enact policies that increase spending and debt as well as spur growth and inflation.

"There is a lot of suspicion that the Fed might be more dovish than hawkish at this point, given the very strong run-up in rates," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

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The U.S. dollar index was last up 0.04 percent at 101.070. The dollar was up 0.15 percent against the at 115.19 yen after hitting a 10-month high of 116.12 yen on Monday.

The euro was last down against the dollar at $1.0621 after briefly touching a five-day high of $1.0666 in morning trading.