The dollar held near a seven-week high against the Japanese yen on Wednesday before the outcome of a Federal Reserve meeting where officials are widely expected to cut interest rates by a quarter of a percentage point.
“The focus will be on the policy outlook and the Fed’s dot plots, and with market positioning broadly neutral, it should be a quiet session for the dollar,” said Thu Lan Nguyen, a currency strategist at Commerzbank in Frankfurt.
Against the yen, the dollar edged up 0.1 per cent to 108.23 yen, just below a seven-week high of 108.37 yen tested overnight. The dollar index against a basket of other currencies rose to 98.28.
The dollar has been driven more by trade tensions between Washington and Beijing this year than by U.S. monetary policy. The dollar has gained nearly 1 per cent against the yen since the last rate cut in July.
Morgan Stanley strategists believe that any dollar upside is likely to be capped, because market expectations are not overly dovish and a trade deal between the United States and China seems likely.
A retreat in global oil prices also restored some calm to markets. Oil prices fell in Asia, extending Tuesday’s 6 per cent decline, after Saudi Arabia’s energy minister said the kingdom had tapped stockpiles to restore oil supplies to where they stood before weekend attacks shut around 5 per cent of global output.
The euro was steady at 1.10620 dollar, more than 1 per cent above the 1.0927 dollar it reached last week, the lowest in more than two years.
After the Fed releases its policy decision, attention will turn to the Bank of Japan’s meeting ending on Thursday to see if it follows its global peers by easing policy.
Deepening negative rates will be an option if the BOJ eases, although the central bank may accompany that with measures to mitigate the pain on financial institutions, sources have told Reuters.