Dollar Holds Steady Ahead of Fed Rate Hike Decision

The dollar is maintaining its recent gains ahead of the Federal Reserve's decision on interest rates. Traders expect the first of several possible US rate hikes, which would bolster the dollar further.

Currency strategist Carol Kong at Commonwealth Bank of Australia notes that a 25-basis-point increase in interest rates is about 90% priced, implying the dollar will receive a modest boost if the Fed increases. However, there's a small chance the dollar eases if the Fed hikes but Chair Kevin Warsh downplays the risk of follow-up hikes in the press conference.

The yen has been one of the exceptions to the broad steadiness in foreign exchange and is heavily influenced by interest rate differentials. With an 80% chance that the Bank of Japan hikes rates on Friday, traders have priced in two 25-basis-point hikes by the end of January.