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US Dollar Consolidates as Fed Decision Looms

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US Dollar Consolidates as Fed Decision Looms

The US dollar consolidated Friday, as a dearth of economic data in the United States pointed forex traders to next week’s Federal Open Market Committee policy meetings.

The US dollar index, which weighs the performance of the greenback against six major currencies, held steady at 80.47, as investors shifted their attention to next week’s FOMC policy meetings. The Fed will coalesce in Washington for the first time this year to set interest rates and determine the path of monetary policy. While no changes to the benchmark lending rate are expected, there is a good chance the Fed will initiate its second bond taper in as many months. Before doing so, however, policymakers must contend with stubbornly low inflation, which may be last hurdle the Fed must clear before closing the books on quantitative easing.

The Fed decided to taper asset purchases by $10 billion at the December FOMC policy meetings. As unemployment continues to fall to pre-recession levels, policymakers may be pressured to expedite the tapering process.

Despite the lack of data from the United States, the forex markets remained active Friday. Profit-taking drove the EURUSD pair down 16 pips to 1.3676. In a speech to the World Economic Forum in Davos, Switzerland, European Central Bank President Mario Draghi downplayed the risk of deflation, reminding markets the euro area is experiencing a “weak, fragile and uneven” recovery.

Meanwhile, the GBPUSD pair tumbled 135 pips to 1.6501 after Bank of England Governor Mark Carney downplayed the possibility of a rate hike.

Below is a round-up of the other major US dollar peers:

The AUDUSD fell 60 pips to 0.8704, extending the pair’s losing streak to three days.

The USDCAD eased off its highs, losing 30 pips to 1.1069.

The USDJPY declined more than 100 pips to 102.32, capping off a remarkable 200 point rally from the yen over the past two days.

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