Peter Nurse

Investing.com — Although the dollar was lower in European trading Wednesday morning, the fundamental strength of the currency remained strong ahead of the Federal Reserve meeting. Expectations of an increase in interest rates next year are expected to be reinforced. 

The Dollar Index (which tracks the greenback against six currencies) fell 0.1% at 2:55 AM ET (755 GMT). This is not too far from the 96.954 peak last week. This week, it has gained 0.5%.

The index fell to 113.69. It climbed 0.1% at 1.1271, and the risk-sensitive rose 0.3% to 0.77122.

rose 0.1% to 1.3245, gaining after U.K. inflation surged to an annual rate of 5.1% in November, its highest since September 2011, raising the pressure on the Bank of England ahead of Thursday’s policy-setting meeting.

As Britain struggles with increasing cases of Omicron coronavirus, the pound has come under severe pressure. Political uncertainty is also starting to make itself felt, with Prime Minister Boris Johnson’s authority undermined by a revolt within his party over the imposition of new restrictions.

The focus on Wednesday will be the, with the U.S. central banking wrapping up its two-day policy-setting session later in the session.

The Fed is expected to taper its bond-buying program faster and increase its projections of interest rate increases. Investors expect this.

Markets expect the Fed to end bond-buying in March, and then move on with rate increases of one or two percent by 2022.

“With the Fed having already met its average inflation goal, and the labour market likely at full employment, we judge that the Fed will start to hike the fed funds rate in June 2022,” said analysts at ABN Amro, in a note. “In total, we expect the Fed to raise the fed funds rate three times in both 2022 and 2023.”

Elsewhere, traded 0.1% lower at 6.3642, after data released earlier Wednesday showed that Chinese grew 3.8% year-on-year in November, an improvement from the previous month’s 3.5% growth. 

also grew 3.9% year-on-year, lower than October’s 4.9% growth, with Covid-19 restrictions weighing on consumer spending.

It rose 1.8%, to 14.6455. The Turkish Lira continued to slide to records lows due to concerns over President Tayyip Erdoan’s unorthodox economic strategy and potential for another rate cut.

The Turkish Central Bank has cut its rate by 400 basis points since September. Meanwhile, the Federal Reserve is expected to raise interest rates soon.