* Investors will focus on Fed’s reaction to recent market turmoil
* Euro firm, Chinese yuan stable despite Shanghai sell-off
* Aussie slips as U.S. crude slides below $30 a barrel
By Anirban Nag
LONDON, Jan 26 (Reuters) - The safe-haven yen and the low-yielding euro rose on Tuesday, as global stock markets and oil prices fell, driving investors to safety and away from commodity-linked and oil-related currencies such as the Australian and Canadian dollars.
The dollar index fell, with investors cautious before the outcome of the Federal Reserve’s two-day policy meeting beginning later in the day.
Investors will be parsing the U.S central bank’s message to determine what, if any, effect volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown will have on the Fed’s previously stated intentions to continue raising rates this year.
U.S. interest rate futures implied that traders put the chance of a Fed rate hike this week at just 13 percent. Over the year, markets are pricing in only one hike, compared to the Fed’s rate path, which factors in at least four rises.
The dollar was down 0.45 percent against the yen at 117.76 yen, while the euro was up 0.15 percent at $1.0865 . Both the yen and the euro tend to do well during times of financial market stress, since both Japan and the euro zone usually run current account surpluses.
“There is a fair bit of nervousness going into the Fed meeting. Interest rate markets have postponed rate hike in 2016 and 2017 so investors expect something dovish from the Fed, given the volatility in stock markets,” said Niels Christensen, FX strategist at Nordea.
“Dollar/yen should be trading with a slight downward bias in the coming few hours.”
In addition to the Fed, investors are also focused on the Bank of Japan’s two-day meeting, which will end on Friday. Most expect the BOJ to hold pat despite the increasingly worrying economic data and stressed markets, though speculation that it might muster additional stimulus steps has intensified this week.
“Even if it appears unlikely that the central bank will consider additional policy action as soon as this week, such a step cannot be excluded by the April meeting,” Credit Agricole strategists wrote in a note.
They added that, while these expectations will cap the yen’s rise, global risk sentiment is likely to drive the currency in the near term.
Meanwhile, the Chinese yuan was remarkably stable in offshore trade, trading at 6.6091 yuan per dollar amid talk that Chinese authorities wanted stability in the onshore market and were keen to limit the damage from a 6 percent slide in the Shanghai stock market.
However, the Australian dollar, a more liquid proxy for China, was 0.2 percent weaker at $0.6941, pressured by the slumping crude futures and stock markets. The Canadian dollar was also down 0.2 percent against the U.S. dollar. (Editing by)