Title: Dollar steady, currency markets quiet as investors wait for Fed

Dec 15, 2021 07:05AM ET

By: AnalysisWatch

The US dollar held firm on Wednesday, while currency markets remained quiet as investors waited to see if the US Federal Reserve would reaffirm market expectations for rate hikes next year.

The Fed statement and economic forecasts are expected at 1900 GMT.

Markets have assumed the Fed will end its bond-buying program in March and then make one or perhaps two rate hikes in 2022. More than two rate hikes, scheduled for next year, would be seen as a hawkish surprise.

The Fed meeting comes at a time when the rapid spread of the Omicron variant of COVID-19 is raising concerns that the economic recovery could falter. Preliminary evidence suggests that COVID-19 vaccines may be less effective against Omicron-related infection and transmission, the World Health Organisation said.

Expectations that the US Federal Reserve will take a tightening stance have kept the dollar strong in recent weeks. It has barely budged since hitting a high of 96.938 last month in July 2020.

Movements in the dollar were muted as investors waited for the meeting. It held up well in Asian trading before easing slightly as European markets opened, down less than 0.1% at 96.517.

Elsa Lignos, global head of FX strategy at RBC Capital Markets, wrote in a note to clients that it would be a positive surprise for the dollar if the Fed did not emphasize the gap between ending securities purchases and rising interest rates, or if markets expected a higher terminal rate.