The dollar was trading mixed during the Asian session, as it was weak against currencies such as the euro and the pound, but positive risk sentiment and rate hike expectations – eventually if not today – boosted it against the yen.
The market appeared to be going into the Fed meeting expecting that rates will remain at zero. Even if the Fed refrains from raising interest rates however, a rate hike is highly likely before the end of the year. Furthermore, a rate hike campaign was also off the cards, as the Fed will likely raise rates and be done with it for around six months, according to analysts.
The previous day’s inflation numbers for August for the United States showed little threat on that front and boosted the chances that the Fed will stay on hold. As an indication, gold gained to reach 1120 an ounce – its highest in about a week. While on the subject of commodities, oil was also strong as the US contract rose above $47 a barrel.
In today’s economic data, New Zealand’s GDP for the second quarter missed estimates, which could mean that the Reserve Bank will likely continue to cut rates from their present 2.75% level. GDP for the second quarter using the output method grew by 0.4% compared to expectations of 0.5%, while using the expenditure approach, the miss was even more significant (0.2% q/q versus 0.5% expected). The kiwi fell sharply against the US dollar to reach 0.6330, but managed to rebound later to 0.6377. It was last trading at 0.6357.
The yen was lower as positive risk sentiment and a worse-than-expected Japanese trade deficit for August, pressured the currency. The dollar closed in on 121 yen at 120.85, while the euro climbed above 136. Japanese exports fell more-than-expected, particularly those to China, while imports also missed the mark.
Looking ahead, the Fed’s decision at 1800 GMT is likely to eclipse other data releases today, such as UK retail sales and US building permits and initial jobless claims. Not only the decision, but the statement, the Fed’s updated forecasts and of course Chair Janet Yellen’s press conference will be very closely scrutinized as to hints regarding the Fed’s thinking about the road ahead for monetary policy.