June 12, 2017 / 3:43 PM / a month ago

FOREX-Dollar flat ahead of FOMC; UK uncertainty weighs on sterling

3 Min Read

* Pound back under pressure after Friday slide

* Prospect of softer Brexit counters economic, political worries

* Dollar flat ahead of Fed meeting, rate rise fully priced (Updates to U.S. market open, adds quote, changes dateline, previous LONDON)

By Dion Rabouin

NEW YORK, June 12 (Reuters) - The dollar was steady on Monday with no major U.S. data releases and ahead of Wednesday's Federal Open Market Committee meeting at which the central bank is overwhelmingly expected to increase U.S. interest rates.

Britain’s pound was back under pressure, down half a percent, after falling more than 2 percent following last week's snap elections that left the Conservatives short of a ruling majority and cast a cloud of political uncertainty over the country.

Fed fund futures prices show investors have priced in about a 96 percent chance that the U.S. central bank raises overnight interest rates to between 1.00 and 1.25 percent on Wednesday.

The nearly universal anticipation of a Fed rate hike along with a more accommodative stance from the European Central Bank after last week's policy meeting and an expectation for the Bank of England to stay on the sidelines because of political uncertainty has helped the dollar fight off a spate of recent negative data on the U.S. economy.

"Ahead of the FOMC meeting things are going to be relatively quiet," said Juan Perez, currency strategist at Tempus Inc in Washington. "The foreign exchange narrative is being dictated by the dynamics of (British Prime Minister) Theresa May’s negotiations in trying to form enough of a government so the Conservatives have the ability to rule."

Sterling fell 0.55 percent to $1.2650.

"Our forecasts are under review but we have been one of the more bullish houses on the street and it is fairly clear that the risks are to the downside," said Barclays' strategist Hamish Pepper.

With a fourth hike in U.S. rates in 18 months now fully priced in for Wednesday, Bank of America Merrill Lynch's head of G10 currency strategy, Athanasios Vamvakidis, pointed to the chance of a weaker greenback after the meeting.

But he also warned that results from the Bank of Japan's meeting, just over 24 hours later, might prompt some more retracement of the yen's 4-percent gain since mid-May.

"The hike by the Fed is fully priced but the language will be dovish," Vamvakidis said.

"What will be interesting will be the BOJ - there have been headlines that the BOJ has been discussing an exit from emergency stimulus. They may well want to bite back against that (and) the yen has come a long way in the past few weeks."

The dollar index, which tracks the greenback against six major currencies, was little changed at 97.248.

The euro also was flat at $1.12. (Writing by Patrick Graham; Editing by Andrew Heavens and Frances Kerry)

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