Currencies: U.S. dollar struggles for direction ahead of widely expected Fed rate hike

Currencies: U.S. dollar struggles for direction ahead of widely expected Fed rate hike

Major currencies were muted on Tuesday as traders were awaiting the Federal Reserve interest rate decision on Wednesday, the major event of the week.

The U.S. dollar was struggling for direction, trading mostly sideways, as the Fed’s two-day monetary policy meeting was about to get under way. Investors are expecting a 25-basis-point interest rate increase Wednesday afternoon. Fed funds futures, which reflect trader bets on central bank action, point at a 93.8% likelihood for a quarter-point increase.

The ICE U.S. Dollar Index

DXY, -0.21%  was last little changed at 94.192.

Don’t miss: Why a Fed rate hike is unlikely to reignite the dollar rally

Meanwhile in Europe, Italy will present a budget including a deficit of 1.9% of GDP for 2019, according to reports. This week’s budget proposal is seen as a risk event for the euro. It has lead to in-fighting in Italy’s governing coalition, while market participants also worry whether the coalition would comply with European Union budget guidelines.

The euro EURUSD, +0.2979%  was somewhat stronger on Tuesday, buying $1.1761 versus $1.1749 late Monday.

Earlier, the shared eurozone currency was knocked off its $1.1775 session high after European Central Bank chief economist Peter Praet labeled Monday’s comments from ECB President Mario Draghi as nothing new. Draghi Monday said that he expected underlying eurozone inflation to strengthen, leading the euro to jump.

On the trade front, renegotiations for the North American Free Trade Agreement are expected to resume this week, ahead of the Sep. 30 deadline. Mexico and the U.S. already agreed to a deal, but Canada is still left out. Market participants named drug patent protection is the latest issue risking a stalemate between negotiating parties.

One U.S. dollar last bought C$1.2958 USDCAD, +0.0154%  , little changed from Monday.

The U.S.-Mexican peso pair USDMXN, +0.0474%  was also little changed at 18.9660.

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