Dollar marginally lower; tight ranges ahead of Fed meeting

Investing.com - The U.S. dollar traded in a tight range early in the European session Tuesday ahead of the start of the latest two-day Federal Reserve policy meeting, while the euro weakened 

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.340, only marginally removed from the six-week high of 103.82 it touched last week.

Dollar stable as Fed meeting starts

Traders have appeared to be reluctant to push the dollar around ahead of the start of the Federal Reserve's two-day policy meeting, which concludes on Wednesday.

That said, the escalating geopolitical tensions in the Middle East, with the U.S. vowing to take "all necessary actions" to defend its troops following a deadly drone attack in Jordan by Iran-backed militants, meant the greenback retained underlying support.

The U.S. central bank is widely expected to keep interest rates unchanged, meaning Fed Chair Jerome Powell’s post policy meeting press conference is likely to attract the most attention as traders seek clues as to when the officials will decide to start cutting interest rates.

Traders currently see a 50-50 chance that the Fed cuts interest rates in March, with expectations having drifted substantially from levels in December when the U.S. central bank estimated cuts of around 150 basis points in 2024.

Tuesday's economic calendar includes data on JOLTS job openings, which kicks off a week of domestic jobs data, culminating in the January U.S. payrolls report on Friday. The data will give further indications of the state of the world's largest economy.

Euro slips lower ahead of eurozone GDP

In Europe, EUR/USD traded 0.1% lower at 1.0824, after data showed that the German economy contracted in the fourth quarter, raising the potential that woes of the region’s largest economy could drag the whole eurozone into recession.

German GDP fell 0.3% on the quarter in the final quarter of 2023, an annual drop of 0.2%. Although numbers out of France, Italy and Spain were more encouraging, eurozone GDP is still expected to contract 0.1% in the fourth quarter, a second consecutive negative quarter.

“As we have seen over recent weeks, investors have sunk their teeth in 2024 easing cycles, and the European Central Bank pushback against aggressive rate cut expectations has not proved effective,” said analysts at ING, in a note. “Eurozone data this week will not help that pushback, given what should be a combination of weak activity data and softer inflation figures for January.”

GBP/USD traded 0.3% lower at 1.2675 ahead of the Bank of England's policy meeting later this week, with the central bank expected to keep interest rates on hold on Thursday.

Data released earlier Tuesday by market researcher Kantar showed that British grocery price inflation declined at a slower rate in January, with annual grocery price inflation at 6.8% in the four weeks to Jan. 21, down from a re-stated 6.9% in the previous four-week period.

Yuan sentiment still negative

In Asia, USD/JPY fell 0.1% to 147.36, with the yen gaining slightly after Japan's jobless rate fell to 2.4% in December from the previous month, government data showed on Tuesday, just under the forecast of 2.5%.

USD/CNY traded marginally lower at 7.1782, although sentiment towards the yuan remains quite pessimistic ahead of Wednesday’s release of official purchasing managers' index data.

“The Evergrande headlines yesterday serve as a reminder that there are no quick fixes for the property sector and the measures announced by policymakers to support local equity markets, such as restrictions on short-selling, are not proving effective,” ING added.