Dollar Falls Slightly Against Euro

Currency traders and investors became somewhat cautious in advance of Wednesday’s FOMC statement. The US dollar fell from a one and a half week against the euro and the dollar struggled against the yen in a trading session that many described as ‘choppy.’ Forex markets saw waning risk sentiment in advance of the Fed’s rate decision. The euro recovered in late trading Tuesday and rose 0.2% to $1.4165.  Euro Zone industrial production figures caused little reaction in currency markets and many analysts felt that markets ‘lacked direction’ in advance of the Fed statement.

Fed to Keep Rates Steady

Most experts believe that the Fed will keep interest rates steady but investors are concerned whether the central bank will end the purchase of buying long-term government securities. Analysts at Commerzbank stated, “The market is currently pricing in a 50 percent probability that the first rate hike will take place at the end of Jan. 10 and Fed comments pointing towards a later date could be short-term dollar negative.”

Yen Up on Safe Haven Demand

The Japanese yen rose to its highest in two weeks against the euro as global stock markets declined increasing safe haven demand. Elisabeth Andreew of Nordea Bank said, “If there’s more panic and losses in stock markets, then we’ll see the yen going stronger. There’s anxiousness about the real economy and people are questioning whether gains in risky assets were justified.” The European Dow Jones Stoxx 600 Index fell for the third straight day affecting currency exchange rates.

Chinese Production Falls Short of Predictions

The yen also gained on both the Aussie and Kiwi dollars as Chinese data showed less than expected growth. Chinese industrial production fell short of predictions causing a decline in risk sentiment. At present both stock and currency markets are awaiting the results of the Fed meeting.