EUROPE MARKETS: Dollar In Holding Pattern As Investors Wait For Fed's Signals On Policy

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Strategists: Yellen and colleagues can show patience

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The U.S. dollar was steady Wednesday, with investors largely expecting the Federal Reserve to say it remains on course to raise interest rates again this year and begin to shrink its massive balance sheet.

The ICE U.S. Dollar Index , which tracks the greenback against a half-dozen other major rivals, was up less than 1 point at 94.07. The index recently hit its lowest level on more than a year, and lost 1.4% last week.

In focus will be the Federal Open Market Committee's policy decision, due at 2 p.m. Eastern on Wednesday (http://www.marketwatch.com/story/no-retreat-fed-to-stick-to-plans-for-rate-hike-balance-sheet-selloff-this-year-2017-07-24). Fed Chairwoman Janet Yellen and her colleagues on the policy-setting board are expected to signal they plan one more rate hike in 2017 -- and that they anticipate starting to sell the central bank's $4.5 trillion in holdings of Treasurys and mortgage-related bonds this year.

Yellen isn't scheduled to hold a press conference after the Fed releases its statement.

"Market participants will be most sensitive to how the FOMC statement discusses inflation. In June, the FOMC recognized that inflation had declined and the core was below target," said currency strategists at Brown Brothers Harriman led by Marc Chandler.

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"The Fed can show patience. There is no rush," but core inflation "needs to rise for perhaps a few months before a cautious central banker may feel confident that the soft patch has passed," the BBH strategists added.

If the Fed either announces or implies an imminent reduction in its balance sheet, the buck could rally toward its falling 50-day moving average, said Matthew Weller, senior market analyst at Faraday Research, in a note Wednesday, referring to a closely watched chart level.

However, a well-established downtrend suggests investors favor shorting into any near-term bounces in the dollar unless it's able to break meaningfully back above the 50-day average, Weller added.

The euro bought $1.1644 ahead of the decision, little changed from $1.1649 late Tuesday in New York.

Against the yen , the dollar bought Yen111.78, down from Yen111.89 late Tuesday.

The pound fetched $1.3050, recovering from an intraday low of $1.3000 after U.K. gross domestic product for the second quarter expanded by 0.3%, meeting widely held expectations. Sterling bought $1.3026 late in the previous session.

(END) Dow Jones Newswires

July 26, 2017 07:27 ET (11:27 GMT)