Dollar Holds Gains as Traders Expect US Rate Hike

The US dollar is holding onto its recent gains ahead of the Federal Reserve's decision on interest rates. Traders expect a 25-basis-point hike, which would give the dollar a modest boost. However, if the Fed doesn't increase rates, the dollar could fall by over 1%.

Currency strategist Carol Kong at the Commonwealth Bank of Australia notes that a 25-basis-point increase is about 90% priced in, implying a modest additional support for the dollar. On the other hand, if the Fed holds back on rate hikes, the dollar could experience a sharp drop.

The dollar has strengthened against several major currencies, including the yen and New Zealand dollar. The yen has been particularly affected, with traders pricing in an 80% chance of a Bank of Japan rate hike this Friday and two hikes by end-January.