The U.S. dollar traded in mixed directions overnight but remained in relatively tight ranges as the Federal Reserve’s FOMC starts their two day meeting today. Markets are pricing in a 100% probability of a Fed rate increase when the Fed announces tomorrow afternoon. The main focus, however, will be on speculation over how many times the central bank may increase borrowing costs over the next year. Fed Fund futures show traders expect between a 0.25-0.50% additional rate increases in the new year.
There is no major economic data slated for release in the U.S. today, so expect the greenback to trade off of news from abroad before traders fully turn their attention to tomorrow’s central bank developments.
The British pound was the biggest winner overnight, advancing against all of its major rivals after a report showed inflationary pressures shot higher. Consumer prices, year over year, rose to a two-year high of 1.2%, beating expectations. So-called core inflation which excludes volatile food and fuel prices also registered higher than expected. The Bank of England has struggled for years to bring inflation up to its goal of about 2.0%, so that data is a welcome sign for policy makers. As a result, the sterling is flirting with multi-month highs against the dollar that it initially reached last week.
The Bank of England will meet on Thursday but is widely expected to keep current policy on hold.
The Canadian dollar was unchanged overnight, but remains elevated against the U.S. dollar as oil prices regained yesterday’s losses. The “loonie” is over 3% stronger against the U.S. dollar over the last two weeks after OPEC announced a deal to cut oil production. Production cuts are easier to agree to than to implement, so some traders believe oil’s bounce may be short-lived.