Dollar holds below 2-1/2 week highs before Fed decision

The dollar held below a 2-1/2 week high on Wednesday as risk sentiment stabilized hours before policymakers at the Federal Reserve are widely expected to indicate their readiness to start raising interest rates starting in March

Markets have been on a rollercoaster ride this week as the combination of a hawkish Fed and slowing growth have unnerved investors, prompting them to dump high-flying technology shares and seek refuge in safe-haven assets such as the dollar

The currency briefly touched a Jan. 7 high of 96.30 against a basket of currencies on Tuesday before ending below that level

In relatively quiet trading on Wednesday, it was a shade higher at 96.057 with U.S. stock futures up more than 1%, indicating a stronger start on Wall Street

“A Fed that attempts to soothe and reassure rocky markets with an orderly outlook for rate hikes could weigh on the greenback,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington

“While a Fed that dials up inflation concerns would strike a dollar-positive hawkish note,” Manimbo said in a morning note

But investors’ appetite for riskier assets such as stocks and emerging market currencies was playing a bigger role for the dollar than the expected path of Fed rate hikes, said Citibank strategist Ebrahim Rahbari

Traders also are waiting for details on how the U.S. central bank plans to reduce its almost $9 trillion balance sheet, a process dubbed quantitative tightening (QT)

“Market sentiment remains fragile,” TD Securities strategists said, noting that “any hints ‘around the starting point for QT or ‘sooner’ and ‘faster’ on hikes could be market-moving

Money markets price in a first Fed rate rise in March, followed by three more quarter-point increases by year-end

The euro slid 0.11% to $1.1287 after falling to $1.12640 overnight, its lowest since Dec. 21

Against the Swiss franc, the euro stabilized at 1.0379 francs per euro, not far from a mid-2015 low of 1.03 hit on Monday

Monetary policy has been a sore point for the euro, given the European Central Bank has downplayed prospects for higher rates this year, making it the main catalyst behind its roughly 4.5% slide versus the dollar the past six months, Manimbo said