The dollar touched a one-week high against a basket of major currencies on Wednesday as investors further trimmed bearish positions ahead of the outcome of the Federal Reserve policy meeting. Investors had sold the greenback heavily in the run up to the October 29-30 meeting on growing expectations the US central bank will maintain its massive bond-buying stimulus programme through to early next year.
As is usual after such a decisive move, investors decided to book some profits ahead of the Fed's decision due 1800 GMT. The dollar index inched up 0.1 percent to 79.648, having touched a high of 79.692 earlier on Wednesday, its highest level since October 22. Just last Friday, the dollar index had plumbed a nine-month low at 78.998.
"Fed meetings have not been friendly to the USD this year, with the dollar weakening following every meeting in 2013 with the exception of June," analysts at BNP Paribas wrote in a client note. "However, with markets already having adjusted to a much more dovish view on the Fed outlook heading into today's meeting, we think the USD is likely to hold up better this time."
The euro held steady at $1.3741, having backed off from a 23-month peak of $1.3833 set just a few days ago. Traders said the currency's repeated failure to cleanly break above $1.3800 had made it vulnerable to a correction. Since September, the common currency has gained roughly 7 US cents.
Against the yen, the dollar held steady at 98.17 yen, clinging close to a one-week high around 98.28 yen set on Tuesday. "It's basically some short covering of the dollar, which had been sold earlier," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. Market players will probably hold off from aggressive dollar buying, given the uncertainty about the US economy's outlook in the wake of this month's 16-day partial government shutdown, Okagawa said.
The lack of clarity may also help limit dollar selling versus the yen in the next few months, he said. "Even if you get one or two strong figures, or weak numbers... I think it will be hard to tilt positions too heavily," Okagawa said. The Australian dollar touched a 2-1/2 week low after having fallen the previous day following the Reserve Bank of Australia's latest attempt at talking down the currency. The Aussie held steady at $0.9477. It fell to $0.9459 earlier on Wednesday, its lowest level since October 14. Immediate support is seen around $0.9410, the 38.2 percent retracement of its August-October rally. A break there will pave the way for a deeper correction.
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