FOREX-Dollar holds breath before Fed outcome

Reuters

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    * Fed expected to raise rates; focus on rate path outlook
    * Euro stuck below $1.18 ahead of Thursday's ECB meeting
    * Sterling gives up gains after Tuesday's Brexit vote boost
    * Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

    By Tommy Wilkes
    LONDON, June 13 (Reuters) - The dollar held firm on
Wednesday and hit a three-week high against the Japanese yen
before a U.S. Federal Reserve policy announcement that investors
will scan for clues on how many more rate hikes there will be
this year.
    The Fed concludes its two-day policy meeting later on
Wednesday and is widely expected to hike rates for the second
time this year. Market expectations are for another couple of
hikes through the remainder of 2018.  urn:newsml:reuters.com:*:nL1N1TD1NR
    Reports that Fed Chair Jerome Powell was considering holding
a news conference and taking questions after every Fed meeting
also supported the dollar as it raised expectations that the Fed
could hike rates more often. The central bank currently holds a
news conference after every other meeting.
    Investors are focused on whether the Fed signals tightening
policy four times in 2018, from the three times indicated
earlier this year, after the world's largest economy has
expanded steadily.
    Tighter monetary policy in the United States and reduced
expectations of rate rises elsewhere sent the dollar on a
six-week long rally, but that run has since fizzled.
    Analysts are divided on whether the Fed meeting will further
boost the dollar, with the focus set to shift to a European
Central Bank policy meeting on Thursday.
    "The FOMC (Federal Open Market Committee) continues to shift
to a neutral policy stance from an accommodative one, and we
expect the committee to remove the forward guidance on rates
remaining below their longer-run rate. Gradual policy tightening
is already well priced by the market, so we do not expect the
dollar to benefit," BNP Paribas analysts said.
    The dollar index  .DXY  traded flat at 93.801 after earlier
inching up 0.1 percent.
    The greenback fell 0.2 percent versus the euro  EUR=  to
$1.1762, while gaining 0.2 percent against the yen to 110.58 yen
 JPY=  after brushing 110.68, its highest since May 23.
    Speculation that the ECB could signal its intention to 
unwind its massive bond purchasing program in 2018 lifted the
euro to a three-week high of $1.1840 last week and has prompted
some strategists to become more bullish on the euro.
    "The euro is trading towards the bottom end of recent ranges
and we expect the currency to strengthen from these levels,
particularly against the dollar," said Paul Bednarczyk, head of
G10 FX at Continuum Economics in London.   
    Emerging market currencies fell as the looming Fed rate hike
hit Turkey's lira  TRY=  and South Africa's rand  ZAR= .
Countries like Turkey with large external financing needs are
particularly vulnerable to rise dollar funding costs. 
 urn:newsml:reuters.com:*:nL8N1TF26N
    The British pound dipped to a one week low of $1.3322
 GBP=D3 , unable to hold gains made overnight when it briefly
rose to $1.3424 after British Prime Minister Theresa May saw off
a rebellion in parliament over amendments to a bill for the
country's exit from the European Union next year.  urn:newsml:reuters.com:*:nL8N1TD505
    Slower-than-expected inflation numbers published on
Wednesday also hurt the pound, as it weakens the case for a Bank
of England rate rise in August.  urn:newsml:reuters.com:*:nL8N1TF1X1  urn:newsml:reuters.com:*:nL8N1TF1ZA
    The Canadian dollar, which has fallen heavily in recent
weeks on concerns an escalating trade dispute with the United
States would hit its northern neighbour's economy hard, fell
another 0.1 percent to C$1.3027  CAD= , not far from almost
three-month lows of C$1.3068.
    The Norwegian crown rallied for a second consecutive day
against the dollar  NOK=  and the euro  EURNOK= , hitting its
strongest against the single currency since late October after
an upbeat central bank survey raised expectations of tighter
monetary policy.  urn:newsml:reuters.com:*:nL8N1TF271           

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DXY and CFTC Positions    https://reut.rs/2yam99i
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 (Additional reporting by Shinichi Saoshiro in TOKYO; Editing by
Toby Chopra/Keith Weir)
 ((thomas.wilkes@thomsonreuters.com))

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