A US dollar banknote is seen in this illustration taken November 23, 2021. REUTERS / Murad Sezer / Illustration

LONDON, Dec. 15 (Reuters) – The US dollar remained firm on Wednesday as currency markets were calm as investors waited to see whether the US Federal Reserve would step up market expectations for rate hikes next year.

The Fed’s policy statement and economic projections are expected at 19:00 GMT. Read more

Markets forecast that the Fed will end its bond purchases around March, then make one or maybe two rate hikes in 2022. More than two rate hikes slated for next year would be seen as a hawkish surprise . Read more

The Fed meeting comes as the rapid spread of the Omicron variant of COVID-19 has raised concerns that the economic recovery is derailed. Preliminary evidence indicates that COVID-19 vaccines may be less effective against infection and transmission linked to Omicron, the World Health Organization has said. Read more

But the expectation of hawkishness from the Fed has kept the dollar strong in recent weeks – it has changed little since it hit 96.938 last month, its highest level since July 2020.

“We don’t remember going to a FOMC meeting with such a strong consensus for a hawkish outcome,” Derek Halpenny, MUFG research manager, wrote in a note to clients.

(Fed Chairman Jerome) Powell might point out the uncertainty in the forecast to such an extent tonight that it dampens the response … The scope of a major move for the US dollar tonight may be limited. “

Neil Jones, head of currency sales at Mizuho, ​​said he expected the Fed to be more accommodating than the market is on price, which would cause the dollar to fall.

“It will be interesting today to see if (the Omicron variant) has had a less hawkish impact on the Fed, which cannot be ruled out,” he said.

“The odds of that happening are probably higher than market expectations right now – it could be a more conciliatory tone on their part than what is currently being considered.”

Movements in the dollar were muted as investors waited for the meeting. It held up during the Asian session, then edged down as European markets opened, down less than 0.1% on the day to 96.517.

Against the Japanese yen, the dollar appreciated 0.2% to 113.815.

Elsa Lignos, global head of foreign exchange strategy at RBC Capital Markets, wrote in a client note that if the Fed did not highlight the gap between ending asset purchases and rising rates, or if the markets were re-pricing to expect a higher final rate, so that would be a positive surprise for the dollar.

Currency markets were little affected overnight by mixed economic data from China, which showed factory output grew faster than expected but retail sales fell short of expectations. Read more

The euro rose 0.1% to $ 1.1265 ahead of a European Central Bank meeting on Thursday, where officials are expected to confirm that the bank’s pandemic bond buying program will end next March. Read more

The pound sterling rose briefly against the dollar after data shows UK inflation hit its highest level in more than 10 years in November. Read more

At 11:42 am GMT, it was up 0.2% on the day to $ 1.32505.

The Bank of England is expected to keep rates unchanged at its meeting on Thursday, due to the spread of the Omicron variant in Britain. Read more

The Australian dollar was up 0.3% to $ 0.7125. The New Zealand dollar lost 0.1% to $ 0.6735.

Meanwhile, the cryptocurrency bitcoin was down 0.3% on the day to $ 48,242.23 – a far cry from its last all-time high of $ 69,000 which was reached in early November.

US retail sales are also expected later in the session.

Reporting by Elizabeth Howcroft Editing by Gareth Jones and Bernadette Baum

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