Dollar struggles to rebound as Fed meeting comes into focus

By Sophie Kiderlin and Rae Wee

LONDON, Jan 27 (Reuters) – The U.S. dollar edged higher on Tuesday but struggled to gain momentum, while traders remained on the alert for potential coordinated currency intervention by authorities in the United States and Japan and looked to Wednesday’s Federal Reserve interest rate decision. 

Much of the recent focus in the foreign exchange market has been on the yen, which has rallied as much as 3% over the past two sessions on talk of the U.S. and Japan conducting rate checks – often seen as a precursor to official intervention.

That has helped the yen steady around 153 to 154 per dollar, some distance away from Friday’s low of 159.23. It was last trading at 154.75, with the dollar gaining around 0.4% against the yen.

“The fact that it’s coming from the U.S. suggests, or is giving risks to the market, that there may be multiple parties perhaps prepared to intervene, which is different compared to what we’ve seen in the past,” said Parisha Saimbi, EM Asia FX and local markets strategist at BNP Paribas.

“And that, I think, is part of the reason why it wasn’t just the move that we saw in dollar/yen, but we saw actually a broad-based dollar move.”

While there has been no confirmation of rate checks from officials in Japan or the U.S., a person familiar with the matter told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers on Friday.

Top Japanese authorities meanwhile said on Monday they have been in close coordination with the U.S. on foreign exchange.

The possibility of intervention has left investors hesitant to push the yen lower, even amid concern about Japan’s fiscal health. Analysts also said there is a high bar for coordinated intervention.

Bank of Japan money market data indicated that a spike in the yen against the dollar on Friday was not likely due to Japanese intervention.

DOLLAR UNDER INTENSE PRESSURE

The dollar has been under intense pressure from a range of factors including Washington’s desire for a weaker currency and uncertainty over U.S. President Donald Trump’s policymaking. 

This could come into play again on Wednesday after the Fed’s interest rate decision, said Nick Rees, head of macro research at Monex. 

“We have a Fed meeting tomorrow, and we think the market’s going to remain pretty tentative ahead of that event. The big risk, as we see it, is not in the rate decision. We’re pretty confident that the Fed is going to hold rates unchanged. But Trump is not going to like that.”

Trump could announce his candidate for Chair Jerome Powell’s successor soon after the rate decision, especially if the president does not support the central bank’s decision, Rees said. 

“We think that’s going to inject some significant dollar volatility,” he said.

The Trump administration’s criminal investigation of Powell and an evolving attempt to fire Fed Governor Lisa Cook will also be in focus during the Fed’s two-day policy meeting which starts on Tuesday.

The dollar rose for the first time in four days against a basket of currencies, climbing 0.2% to 97.27. It has fallen around 1% since the start of the year, and hit a four-month low of 96.808 on Monday.

The euro slipped 0.2% to $1.1855, not far from a four-month peak of $1.19075 on Monday. Sterling dipped 0.07% to $1.3668, remaining perched near the previous session’s four-month top of $1.37125.

The Australian dollar eased slightly, but held near Monday’s 16-month high of $0.6941.

(Reporting by Sophie Kiderlin in London and Rae Wee in Singapore, Editing by Shri Navaratnam, Christopher Cushing and Timothy Heritage)