The dollar moved sideways against the yen and euro early on Wednesday, as traders braced for a meeting by OPEC later in the day which could potentially churn financial markets and weigh on the U.S. currency.
The dollar was steady at 112.430 yen. It had surged to 113.340 overnight on robust revised U.S. GDP data but failed to sustain the gains as U.S. debt yields, a key driver of the dollar recently, pulled back from 16-month highs.
The euro was little changed at $1.0648, barely adding to overnight gains of 0.3 percent when it pulled away from a low of $1.0565. The dollar index was flat at 100.98 after shedding 0.4 percent the previous day.
The greenback has surged 7 percent versus the yen and risen 3 percent against the euro in November. It has been boosted as Donald Trump’s U.S. election win earlier in the month drove Treasury yields higher on expectations for stepped up fiscal spending, higher inflation and a faster pace of monetary tightening by the Federal Reserve.
But the U.S. currency has lost some steam recently with Treasury yields showing signs of peaking for now amid buying by investors’ month-end portfolio rebalancing.
That probably explains why the dollar failed to capitalise on Tuesday’s upbeat U.S. third quarter GDP and much stronger-than-expected November consumer confidence numbers.
“These improvements confirm that a rate hike is coming on December 14th,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
“They also boost the chance of further tightening in 2017 but with Fed fund futures only pricing in a 30 percent chance of another hike by May, investors see a hike followed by a long pause from the Fed, which is the biggest problem for the dollar,” Lien said.
“U.S. economic reports may be important but the main focus will be on Organization of Petroleum Exporting Countries (OPEC) and the Canadian dollar.”
Many analysts believe OPEC will cobble together a deal to cut some production at its meeting in Vienna starting at 1000 GMT. But doubts still lingered as Iran and Iraq, OPEC’s second- and third-largest producers, have resisted pressure from the group’s de facto leader Saudi Arabia to curtail output.
Crude oil prices dropped nearly 4 percent on Tuesday on nervousness ahead of the OPEC meeting. A further price decline could hurt risk sentiment, which would benefit safe-havens like the yen, and also further push down bond yields to the dollar’s disadvantage.
The Canadian dollar last stood flat at C$1.3432 per dollar, having moved between a 9-month low of C$1.3589 and C$1.3425 in November.
Apart from the OPEC meeting, the market will look to U.S. data for catalysts later in the day, including the November ADP employment report, November Chicago purchasing managers’ index (PMI) and October pending home sales.
The Australian dollar was effectively flat at $0.7485, within reach of a 12-day peak of $0.7497 struck the previous day.
The pound was steady at $1.2490 after rising 0.6 percent on Tuesday, helped in part after data showed lending to Britons expanded last month at the fastest annual pace in 11 years, while mortgage approvals were stronger than expected, bolstering the picture of resilient consumer demand after June’s Brexit vote.