Prior to the completion of the U.S. Federal Reserve’s policy meeting on Wednesday, the dollar was trapped near five-week lows as investors awaited information on the course that the central bank is expected to take in the wake of the crisis in the world’s financial system.
Market focus is centred on whether the Fed would maintain its hawkish course to combat sticky inflation or stop interest rate hikes in light of recent bank problems, which have included bankruptcy and last-minute rescues.
The U.S. dollar index, which compares the value of the dollar to six other currencies, was at 103.22, slightly above the overnight five-week low of 102.99. The euro was trading at $1.0767, just below a five-week high set overnight of $1.0789.
According to the CME FedWatch tool, markets are currently pricing in a 14% likelihood of the Fed not raising rates and an 86% chance of a raise of 25 basis points. A 50 basis point hike was priced into the market at a 24% likelihood just one month earlier.
Investor sentiment remained precarious, with concerns about the outlook for the banking industry beginning to ease after the market experienced extreme volatility in recent weeks as a result of high-profile U.S. banking failures earlier in the month and the weekend rescue of lender Credit Suisse Group AG.
The policy statement will be released at 2 p.m. EDT (1800 GMT) on Wednesday, and Chair Jerome Powell will hold a news conference 30 minutes later.
The yen dropped 0.04% to 132.59 per dollar, while the last price of sterling was $1.2221, up 0.06% on the day.
The New Zealand dollar dropped 0.16% to $0.618 while the Australian dollar increased 0.04% to $0.667.
Bitcoin last decreased 0.14% to $28,114.13 in cryptocurrency, dropping from the nine-month high it reached on Monday. Last time, Ethereum dropped 0.47% to $1,793.72.
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