Forex: Dollar eases as investors weigh up outlook for Fed

Prior to the completion of the Federal Reserve’s policy meeting, when investors will be seeking for any indication of what could happen with interest rates given the upheaval in the banking sector, the dollar lingered at five-week lows on Wednesday.

The most likely conclusion, according to the markets, is a quarter-point increase in U.S. interest rates, but investors are eager to hear what Chair Jerome Powell has to say about the crisis that has shaken international banks this month and how cautiously the central bank believes it has to go.

After the bankruptcy of numerous smaller U.S. institutions and the collapse of Credit Suisse over the weekend, which caused extreme market volatility and a collapse in banking stocks and bonds in particular, the Fed, along with other major central banks, has taken steps to lubricate the financial system.

Investors are breathing a little easier this week as a result of Credit Suisse’s shotgun acquisition by UBS and the support provided by US authorities and major banks for some of the more vulnerable regional institutions. As a result, the dollar has lost some of its safe-haven attractiveness.

The policy statement will be released at 2 p.m. EDT (1800 GMT) on Wednesday, and Powell will have a press conference 30 minutes later.

The pound had the best day of any G10 currency, rising 0.5% against the dollar to trade at $1.2279 after data revealed that UK inflation in February was significantly higher than anticipated, placing the Bank of England’s policymakers in an awkward position when they meet on Thursday.

The markets indicate that traders now completely anticipate a hike of 25 basis points, when just 24 hours before, there was a 50/50 possibility that the bank would increase by a quarter of a point or remain unchanged.

The euro recently traded at $1.0795, up 0.2% versus the dollar but down 0.3% against sterling at 87.81 pence.

The dollar increased against the yen by 0.4% to 132.98, while the Australian and New Zealand currencies also increased by 0.3% to $0.6688 and $0.621, respectively.

In terms of cryptocurrencies, bitcoin last increased 0.3% to $28,274, which is still below Monday’s nine-month high.