In This Article:
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
* Currency markets edgy before Fed, policy outlook
* Yen, franc firm on safety-bid
By Vatsal Srivastava
SINGAPORE, Dec 19 (Reuters) - It was all about the Federal Reserve for the dollar on Wednesday, as it struggled to shake off expectations policy makers would slow the pace of U.S. monetary tightening after their keenly-watched meeting later in the day.
The safe-haven yen and the Swiss franc held a firm tone as an overnight plunge in oil prices provided another stark reminder of the dimming prospects for the global economy, and underscored why traders expect the Fed will likely be done after an expected rate hike this week.
"The positioning going into the FOMC meeting is very defensive and that's why we are seeing the dollar weakening," said Michael McCarthy, chief markets strategist at CMC Markets.
The yen and the Swiss franc each added a little more than 0.1 percent on the dollar, changing hands at 112.33 and 0.9916 respectively, building on three consecutive days of gains.
Risk sentiment has been soured by weaker-than-expected economic data out of China and the eurozone, while the Sino-U.S. trade dispute and a collapse in oil prices have added to fears the global economy is fast losing momentum.
In Asia, markets are looking to China’s three day Central Economic Working Conference (CEWC) meeting that starts on Wednesday for Beijing's growth and reform objectives. A steady downturn in China's economy this year has been one of the key drivers of asset markets, including currencies, over the past several months.
The dollar index was down 0.25 percent at 96.86, hovering near a one-week low as it extended losses into the second day. The Fed speculation and global growth anxiety have sent U.S. bond yields down and put further pressure on the dollar - the U.S. 10-year treasury yield has dropped about 10 basis points in the last three days.
Nervous anticipation was palpable in global markets as they awaited the Fed's decision later in the day, especially as they look to its policy guidance for 2019 after what is expected to be its fourth rate hike for this year.
According to the CME Group's FedWatch tool, the probability of a December rate hike is 69 percent, down from around 75 percent last week, a significant move in such a short period.
While the U.S. central bank's latest median dot plot projections from September indicated three more hikes in 2019, the rate futures market is pricing in only one more rate hike for 2019 - a shift that underscored growing signs of stress on the global economy that many believe will eventually crimp U.S. growth.