NEW YORK: The dollar rose across the board on Wednesday, bouncing back from multi-month lows as traders eyed the Federal Reserve’s meeting outcome later in the day for clues to the path of US interest rates.
The buck also found some support from a brief jump in volatility after authorities detained Turkish president Tayyip Erdogan’s main political rival, knocking the lira by about 12% to a record low. Against the dollar, the euro was down 0.4% to $1.090 as some traders exited bearish bets against the buck after a three-day streak of gains for the common currency.
The buck has sold off about 6% against the euro since mid-January as investors grew concerned over the economic fallout of President Donald Trump’s policies on trade and tariffs. “It’s just short covering, really,”
Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said. “The dollar selloff kind of stabilized yesterday and we have seen a bit of a pickup overnight,” Osborne said. Investor attention was squarely on the outcome of the Fed meeting later in the day when traders largely expect the central bank to hold policy rates steady.
The Fed is expected to offer new economic projections that will show if policymakers still see rates moving lower by the end of the year as they sort through the implications of the first two months of the Trump administration.
Traders are currently pricing in nearly 60 basis points of Fed rate cuts by the year-end. “The March FOMC meeting will likely be all about policy uncertainty. The Fed will almost certainly stay on hold, emphasising patience over panic,” said analysts at Bank of America Securities. “The (Summary of Economic Projections) forecasts and distribution of risks are both likely to reflect stagflation: weaker growth and higher inflation.” While the dollar selloff may have abated in recent sessions, the US currency remains vulnerable to more weakness, analysts said.
“For the US dollar, it probably needs the Fed to be quite a bit more hawkish to turn this trend around,” Scotiabank’s Osborne, who expects the dollar to slip another couple of percentage points, said.
On Wednesday, the buck benefited from a safe haven bid as the Turkish lira plunged amid political turmoil in Turkey. Istanbul mayor Ekrem Imamoglu, Turkish president Erdogan’s main political rival, was detained on charges of corruption and aiding a terrorist group in what the main opposition party called “a coup against our next president.”
The dollar was last up 3.6% against the lira at 38.03, after rising to a record high of 42, earlier in the session.
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