By Karen Brettell

NEW YORK (Reuters) – The dollar slipped on Wednesday ahead of the conclusion of the Federal Reserve’s two-day policy meeting, with investors focused on whether Fed Chair Jerome Powell will adopt a more hawkish tone as inflation remains stubbornly above its 2% annual target.

Stickier than expected consumer price inflation in March dashed hopes that elevated readings in January and February were anomalies, leading traders to push back expectations on when the U.S. central bank is likely to cut interest rates.

Fed fund futures traders price in only one rate cut this year, with a roughly 50% probability it will occur in September. Traders had previously expected three rate cuts this year, likely beginning in June.

The fell 0.11% to 106.20, after earlier reaching 106.49, the highest since April 16. A break above the 106.51 would be the highest since early November.

“The market is clearly concerned that the Fed will take some hawkish steps,” said Adam Button, chief currency analyst at ForexLive in Toronto.

However, Powell is unlikely to put the prospect of new interest rate hikes on the table on Wednesday, and is instead likely to promote holding rates higher for longer.

That could disappoint investors and send the dollar lower against peers.

“We’ve seen this play out dozens of times where the market gets frightened about a hawkish Fed and then Powell is neutral or dovish,” Button said.

The ADP Employment report on Wednesday showed that U.S. private payrolls increased more than expected in April while data for the prior month was revised higher.

A U.S. Labor Department report, meanwhile, showed that job openings fell in March.

Separately U.S. manufacturing contracted in April amid a decline in orders after briefly expanding in the prior month, while a measure of prices paid by for inputs approached a two-year high.

The euro gained 0.14% to $1.0682. The pound weakened 0.09% to $1.2479.

The dollar fell 0.17% to 157.53 yen.

The Japanese currency rallied sharply on Monday, with traders citing yen-buying intervention by Japanese authorities to try to underpin a currency languishing at levels last seen over three decades ago.

The dollar has since crept higher, raising questions on whether additional steps will be needed to stop further yen weakness. The Japanese currency is suffering from a wide interest rate differential that makes borrowing in the yen and investing in U.S. assets attractive.

“There aren’t many options for Japan. In one way intervention is just an invitation to buy the dip for most FX traders at better levels,” said Button. “Dollar/yen will not stop climbing until the U.S. economy cools off.”

In cryptocurrencies, bitcoin fell 4.41% to $57,226 after earlier reaching $56,483, the lowest since Feb. 27.

By Alun John

LONDON (Reuters) -The dollar edged towards its highest level this year against a basket of peers and U.S. share futures dipped on Wednesday ahead of a Federal Reserve policy decision, though trading was thin with many European and Asian markets closed.

The dollar gained over 0.5% on Tuesday on the six currencies that make up the , and the gauge rose as high as 106.49 on Wednesday, a whisker off its highest since November.

The euro steadied but was under pressure at $1.0670, not far from its mid April, five-month lows, while the pound was at $1.2478.

The latest move higher in the dollar came after hotter-than-expected first-quarter U.S. employment cost growth on Tuesday, which sent Treasury yields higher and caused markets to further pare bets on Fed rate cuts this year.

Traders are currently only pricing in one rate cut in 2024.

The Fed is almost certain to hold its benchmark overnight interest rate steady later in the day, but a policy statement issued at 1400 EDT (1800 GMT) and Chair Jerome Powell’s press conference half an hour later should provide insight into how deeply – if at all – a stretch of three lost months in the inflation battle has affected the likelihood that borrowing costs will fall any time soon.

“It’s pretty clear from the way that the data has been that we’re going to see a focus shift from the last Fed meeting, the question is the extent to which Powell has already previewed the shift of rhetoric when he last spoke,” said Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas (OTC:).

The Fed chair said in mid-April that monetary policy needed to be restrictive for longer.

“Heading into the Fed, we see that from a short-term perspective the dollar is not looking cheap anywhere,” said Sneyd.

The benchmark was flat on the day at 4.686%, just shy of mid-April’s peak of 4.739%, its highest in five months, having jumped 7 basis points (bps) the day before.

European bond markets were closed for the May 1 holiday as were most share markets in Europe and those in China, Hong Kong and much of Asia.

U.S. futures dipped 0.4%, and Nasdaq futures shed 0.65% as chip stocks led losses after downbeat results. [.N]

Amazon.com (NASDAQ:) bucked the trend to rise 2.2% in pre market after reporting quarterly results above market expectations.

Of those share markets that were trading, edged up a touch, holding near its latest all-time intraday high hit the day before, and dipped 0.34%.

The British blue-chip index, which has underperformed world peers in recent months, was a rare gainer in April, rising 2.4%, helped by commodities stocks, while MSCI’s world index dropped 3.4%, its biggest monthly fall since September.

The other focus in currency markets is the Japanese yen. The currency dropped to 160 per dollar on Monday, its lowest since 1990, before strengthening in several sharp bursts to as strong as 154.4 per dollar with traders pointing to likely official intervention.

Japanese officials may have spent some 5.5 trillion yen($35 billion) in supporting the currency on Monday, Bank of Japan data suggested on Tuesday, but the yen was last at 157.9, over half way back to its pre-intervention level.

Oil prices fell for a third day on Wednesday amid increasing hopes of a ceasefire agreement in the Middle East and rising crude inventories and production in the U.S., the world’s biggest oil consumer.

was down 1.2% at $85.27 a barrel. was down 1.4% at $80.73.

Gold was up 0.5% at $2296.4 an ounce but still down 5.5% from its mid-April record high, also affected by easing tensions in the Middle East.

Investing.com – The U.S. dollar edged higher Wednesday, climbing towards its highest level in November ahead of the conclusion of the latest Federal Reserve policy-setting meeting.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 106.240, after earlier climbing as high as 106.380, near the 106.51 mark that would be the highest since Nov. 1. 

Does the Fed still see rate cuts this year?

The concludes its latest two-day meeting later in the session, and is widely expected to keep interest rates at the elevated 5.25%-5.5% levels.

Progress towards the Fed’s 2.0% medium-term inflation target has somewhat stalled of late, as typified by Tuesday’s release of the Employment Cost Index, which rose at an elevated 4.2% rate on a year-over-year basis in the first quarter, matching the rise in the fourth quarter.

This has resulted in futures markets pricing in just a single quarter-point rate cut by year-end, from as many as five of those at the start of the year, with this hawkish leaning benefiting the dollar.

The main focus will be on what Chair has to say in his news conference, particularly given the bank won’t be updating economic projections this time around.

Investors will be awaiting indications about whether the Fed still expects to cut interest rates at some stage this year.

Euro calm as inflation holds steady

In Europe, edged higher to 1.0669, trading in limited volumes with much of the European continent on holiday.

Data released on Tuesday showed that held steady at 2.4% in April, solidifying an already strong case for the to cut interest rates next month.

The ECB all but promised a rate cut on June 6, provided there is no nasty surprise in wage or price developments.

“The ECB’s governing council considers that if this inflation outlook is maintained, it would be appropriate to start reducing the current level of monetary policy tightening in June,” De Cos, who is also head of the Spanish central bank, said in the Bank of Spain’s annual report on Tuesday.

traded largely flat at 1.2491, in subdued trading.

As it currently stands, money markets currently fully price a first quarter-point Bank of England rate cut by its Aug. 1 meeting – with a roughly 50-50 chance of a move as soon as June 20.

Yen retreats; more intervention needed?

In Asia, rose 0.1% to 157.91, with the yen retreating even after suspected government intervention sparked a sharp rebound in the currency.

The pair is still way off the 34-year high of 160.245 seen at the start of the week, but the Japanese authorities will be concerned that the yen appears to be retreating once more, potentially forcing them to enter the market once more.

Other Asian currencies were muted, amid a mix of labor day holidays and caution before the Fed. 

rose 0.2% to 0.6482, with the Aussie dollar pair strengthening ahead of next week’s meeting of the . 

The RBA could potentially offer up a hawkish stance following a stronger-than-expected inflation reading for the first quarter.