Dollar softens before looming Fed hike

The dollar edged further away from recent 20-year highs on Wednesday ahead of the U.S. Federal Reserve policy meeting, at which the central bank is expected to raise rates by another 75 basis points to tame soaring inflation, Reuters reported.

Money markets are betting that the Fed will raise rates by 75 basis points (bps), with an outside chance of a larger 100 bps hike. Traders expect the Fed to take the rate to as high as 3.4% by year-end to help bring inflation back to target.

Bets on oversized rate hikes helped push the dollar index =USD to its highest level in almost 20 years earlier this month at 109.29, with the greenback currently up 2.3% in July.

“Markets are taking a bit off the table before tonight’s Fed meeting,” said Simon Harvey, head of FX analysis at Monex Europe.

“Barring any imminent headlines on European energy or political developments I think we will see very limited ranges.”