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US dollar poised to break higher ground as Fed decision looms

H.S. Borji
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The US dollar advanced briskly against a basket of currencies Wednesday, as investors shrugged off disappointing inflation numbers ahead of the Federal Reserve’s anticipated rate announcement this afternoon.

The US dollar index, a weighted average of the greenback against a basket of trade partners’ currencies, advanced 0.54 percent to 88.60. The dollar appreciated against all six of its index peers, posting solid gains against the euro, yen, franc and krona.

The EURUSD declined more than 100 pips, hitting an intraday low of 1.2396. The pair consolidated at 1.2405, declining 0.89 percent. The pair faces initial support at 1.2368 and resistance at 1.2580.

The USDJPY reversed its recent slide, advancing 0.61 percent to 117.33. The pair faces initial support at 115.45 and resistance at 117.92.

The USDCHF climbed 0.83 percent to 0.9674. The pair is testing initial resistance at 0.9653. Support is descending from 0.9546.

The dollar advanced against its chief Nordic cross, the Swedish krona, as the USDSEK rose 0.78 percent to 7.6612. Initial support is likely found at 7.5301 and resistance at 7.7136.

In economic data, US inflation posted its steepest decline in six years thanks to plunging oil prices. The consumer price index declined 0.3 percent in October, the Labor Department said on Wednesday. Annual inflation increased 1.3 percent, the smallest gain since February. The annual CPI rate was 1.7 percent in October.

So-called core inflation, which strips away prices tied to food and energy, edged up 0.1 percent. Year-on-year, core inflation rose 1.7 percent, official data showed.

Crude prices have fallen below $60 a barrel, hitting a fresh five-and-a-half year low amid clear indication from the Organization of the Petroleum Exporting Countries that the world’s major oil producers would not trim production levels in response to waning international demand. This could send the price of crude below $50 a barrel, with some analysts predicting a decline to $40. While good for consumers in the short run, a prolonged bout of rock-bottom oil prices could destroy America’s booming oil shale industry. Producers in Canada and Australia could also be impacted.

Energy futures rebounded modestly Wednesday. West Texas Intermediate crude rose 43 cents to $59.36 a barrel. Global benchmark Brent climbed 51 cents to $60.52 in New York trade.

The Federal Reserve will probably acknowledge the meteoric drop of crude prices in its press conference today. While the Fed is not expected to make any profound changes to its approach to monetary policy, it could drop its “long-term” commitment to record-low interest rates.

When it comes to interest rates, the Fed has long maintained it would keep the cost of borrowing low for “a considerable time.” Many analysts believe the central bank will drop that pledge today, signaling policymakers are ready to consider a rate-hike sometime next year.

The Fed will also release a quarterly summary of economic projections alongside the official rate statement. The summary provides a snapshot of policymakers’ GDP and inflation forecast over the long-term.

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