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US dollar stays strong ahead of Fed meeting

US central bank expected to hike interest rates at 2-day meeting that starts today

TOKYO The US dollar inched higher yesterday ahead of the Federal Reserve's meeting that is expected to deliver an interest rate hike as well as clues to future monetary policy, while the euro remained under pressure after the European Central Bank's dovish moves last week.

The US central bank is widely expected to hike interest rates for the first time this year at a two-day meeting that begins today, even as investors wait to see if policymakers take a more cautious tone on the economy.

Markets were pricing in a nearly 100 per cent chance for a quarter percentage point increase to the Fed's target range.

Investors will be scrutinising the Fed's economic projections for signs of change following Mr Donald Trump's surprise victory in the US presidential election.

"As we have been saying, it's not so much about what the Fed does but more about what it says," said Mr Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

Investors have continued to build up long US dollar positions on expectations of higher inflation with increased infrastructure spending under the Trump administration.

"Part of the positioning is also seasonal, as some players try to accumulate long US dollar positions ahead of the Christmas holiday," Mr Murata added.

POSITIVE BETS

Speculators increased positive bets on the US dollar for a third straight week through Dec 6, pushing net longs to their highest since early January, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The US dollar edged up 0.1 per cent to 115.43 yen ($1.40) after earlier touching 115.55 yen, its loftiest peak since February.

The euro slipped 0.2 per cent to US$1.0541 ($1.50), moving closer to the US$1.0505 level that would mark its lowest point in around 21 months.

The common currency remains under pressure after the European Central Bank (ECB) announced last Thursday that it will extend its bond-buying programme longer than many investors had anticipated, although it trimmed the size of its monthly purchases.

The ECB's move also put more upward pressure on already rising US Treasury yields, which also bolstered the US dollar's appeal.

The benchmark 10-year Treasury note yield was last at 2.491 per cent, above its US close of 2.464 per cent last Friday and closing in on its nearly 1½ year peak set on Dec 1.

The US dollar index, which tracks the greenback against a basket of six major rivals, was 0.1 per cent higher on the day at 101.65. - REUTERS

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