The rise of the dollar as investors prepare for market volatility; Fed meeting

LONDON (Reuters) – The euro fell slightly on Monday, as investors bought the dollar and prepared for market volatility, in anticipation of US-China trade talks and a policy decision. monetary policy of the Federal Reserve.

Investors are focused on the Fed meeting on Wednesday where policymakers should pause in their tightening cycle and recognize the growing risks to the US economy.

This will probably weigh on the greenback, which has fallen 1% since the end of December, after benefitting from four Fed rate hikes in 2018.

On Monday, however, the dollar was boosted by safe-haven buying, as traders eagerly await news of the US-China talks on Tuesday and Wednesday to see if the world's largest economies can reach a compromise on trade.

"Unless negotiations break down, we believe that the cautiously risky climate can continue – which should favor the underperforming emerging market currencies at higher yield against the dollar," said Chris Turner, head of the foreign exchange strategy at ING in London.

The dollar index, an indicator of its value against six major competitors, was slightly higher at 95,896, after falling 0.8% on Friday.

An agreement on the reopening of the US government last week after a prolonged shutdown has reduced investors' demand for the safety of the greenback.

"The general direction of the dollar is still down and the markets will be inspired by the FOMC this week," said Sim Moh Siong, currency strategist at Bank of Singapore.

"Fed will most likely maintain rates this year given economic growth outside the United States"

The dollar fell 0.1% against the offshore yuan at 6.7406. The rise in the yuan also fueled the rebound of the Australian dollar, which gained 0.18% against the dollar to USD 0.7195.

Traders are bearish on the dollar for 2019.

The euro was slightly weaker Monday at $ 1.14.

The single currency managed to cling to a 0.4% gain last week despite the European Central Bank's deterioration in its short-term growth forecasts.

Growth data from European economic powers such as Germany and France have been weaker than expected and badysts expect the ECB to remain dovish for a long time.

Traders believe that the slowdown in Europe and an accommodating ECB take into account the euro, which has moved in the range of $ 1.12 to $ 1.16 over the last three months.

The pound tumbled on Monday after posting its strongest weekly gain in more than 15 months last week as investors consolidated their positions ahead of a string of Tuesday's British parliamentary vote that will aim to break the deadlock over Brexit.

Analysts expect the pound to remain volatile. Britain is about to leave the EU on March 29, but members of the country's parliament are still far from accepting a divorce agreement.