By Gina Lee
Investing.com – The dollar was down on Wednesday morning in Asia, but moves were small as investors bet on the U.S. Federal Reserve hiking interest rates quicker than expected in 2022 from its policy meeting later in the day.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.02% to 96.520 by 10:28 PM ET (3:28 AM GMT).
The USD/JPY pair inched up 0.02% to 113.74.
The AUD/USD pair inched up 0.02% to 0.7104 while the NZD/USD pair was down 0.25% to 0.6728.
The USD/CNY pair inched down 0.04% to 6.3647. Chinese data released earlier in the day showed that industrial production grew 3.8% year-on-year, fixed asset investment grew 5.2% year-on-year, and retail sales grew 3.9% year-on-year in November.
The GBP/USD pair inched down 0.08% to 1.3227.
Around 20 key central banks will hand down their policy decisions throughout the week, with the Fed handing down its policy decision later in the day.
Currency markets were “taking a tiny break from the omicron COVID-19 variant” despite it “very much bubbling away in the background... it's hard for it to be the dominant focus when you’ve got the Fed, and the Bank of England and European Central Bank lining up to make policy decisions,” CBA currency analyst Kim Mundy told Reuters.
She added that investors were watching the Fed meeting for two reasons, firstly whether the central bank will accelerate asset tapering and secondly whether it will bring forward their projections for interest rate rises, known as "dot plots".
They are betting the Fed will complete asset tapering between $25 billion-$30 billion per month, from $15 billion currently, by March 2022. They also predict one or two interest rate hikes in the same year.
A figure at the lower end of that range could cause some short-term dollar weakness, said Mundy.
The Bank of England (BOE) will hand down its policy decision on Thursday. The BOE is expected to keep interest rates steady, according to a Reuters poll, with the U.K. reporting the first death linked to omicron on Monday, according to Prime Minister Boris Johnson.
The European Central Bank will also hand down its policy decision on Thursday, followed by the Bank of Japan a day later.