The dollar steadied against the yen and euro on Tuesday after its weakest day in a week, with markets still uneasy that a Federal Reserve meeting ending on Wednesday may provoke more investors to cash in the greenback’s recent gains.
Barclays was the latest major bank to cast some doubt on a dollar rally extending into a first quarter set to be dominated by the first policy initiatives from the Trump administration.
While investors have bet on the new president taking steps to bolster growth that will push inflation higher, there are also concerns that he may spark protectionism globally, driving cash into traditional safe havens like the yen.
A rise in Fed interest rates on Wednesday, a big reason for the dollar index’s 7 percent rise since September, looks fully priced in and there are also doubts over whether the U.S. central bank will want to send a strong signal that more tightening is to follow.
“We think the meeting may be a catalyst for people to take some profit on long dollar positions,” Barclays analyst Hamish Pepper said.
“The dollar tends not to perform particularly well in December. If you put that together with a well priced Fed meeting plus already long positioning, it is the right set-up for a pullback.”
The yen strengthened to less than 115 yen per dollar in Asian trade before settling at 115.34, down 0.2 percent on the day but almost a full yen stronger than 24 hours previously. It has borne the brunt of the dollar’s rally in the past month, down 13 percent since early October. But some traders and analysts have begun to wonder if the Japanese currency might benefit next year if global political risks grow.
Barclays forecasts the dollar weakening to 100 yen in a year’s time.