March 18, 2019 / 1:12 AM / 10 months ago

Dollar steady ahead of Fed's interest rate decision

NEW YORK (Reuters) - The U.S. dollar was little changed against a basket of currencies on Monday, sticking close to a two-week low, as caution about the American economy and expectations for an accommodative Federal Reserve kept the greenback subdued.

FILE PHOTO: A trader shows U.S. dollar notes at a currency exchange booth in Karachi, Pakistan December 3, 2018. REUTERS/Akhtar Soomro

The dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was about flat on the day at 96.555. The index hit a two-week low of 96.376 earlier in the session.

The dollar has weakened in recent sessions as investors expect the Fed to strike a dovish tone when it meets this week.

Market participants expect the central bank to keep its benchmark overnight interest rate unchanged and stick to its pledge of a “patient” approach to monetary policy. Soft U.S. manufacturing data on Friday helped cement that expectation.

“The Fed will be the big news this week, and the market is looking for them to reinforce the dovish line and continue to hammer the point that they are here to support markets,” Brad Bechtel, global head of FX at Jefferies, said in a note.

Traders will focus on whether policymakers will have sufficiently lowered their interest rate forecasts to more closely align their individual rate views for the next three years with the pledge of patience, analysts say.

Investors will also be watching for details on any plans by the Fed to stop culling its holdings of nearly $3.8 trillion in bonds.

“With the Fed expected to reduce its forecasts for future interest-rate rises, investors should expect this to boost appetite for risk assets later this week,” Dean Popplewell, vice president of market analysis at foreign exchange trading firm Oanda, said in a note.

The dollar clung to tight trading ranges against most major currencies.

Russia’s ruble hit a seven-month high, supported by stronger oil prices and interest in the country’s sovereign bonds.

Sterling dropped below $1.32 after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.

“Today’s developments don’t alter our view that uncertainty will continue to dominate over the next fortnight. We would not advise adding to long sterling positions given the multiple scenarios in play,” said Geoffrey Yu, head of UK investment office, UBS Wealth Management, in London.

“However, a ‘no-deal’ Brexit is still not our base case, and the market seems to agree no-deal is limited to only a tail risk, which explains why the pound has not reacted more adversely,” he said.

Reporting by Saqib Iqbal Ahmed; additional reporting by Sujata Rao in London; Editing by Lisa Shumaker

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