Dollar stalls ahead of Fed meeting as rate move eyed

By Kate Duguid

NEW YORK (Reuters) - The dollar hovered in a narrow range on Tuesday, a day before the conclusion of a U.S. Federal Reserve meeting at which policymakers are expected to cut interest rates for the first time since the financial crisis.

The forecast 25-basis-point cut would be aimed at insulating the U.S. economy from global uncertainties and trade pressures, in contrast to interest rate cuts by countries facing more imminent risks. Markets will be watching for guidance on whether the Federal Open Market Committee's expected move is a one-time cut or the beginning of a rate-cutting cycle.

"The market is on hold waiting for the FOMC meeting tomorrow. That is expected to be the next driver of price action at a general level," said Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse in New York.

The euro on Tuesday steadied above the 26-month low it reached last week of $1.110. A Fed cut could extend the euro's broader move lower.

"The outlook for transatlantic monetary policy seemingly favors a weaker EURUSD on the notion that ECB easing would be out of necessity, whereas lower U.S. rates would mostly be insurance against global headwinds," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

The pound was the biggest mover in the foreign exchange market, plunging to a new 28-month low of $1.212 in Asian trading on growing concerns that Britain could crash out of the European Union without a transition agreement on Oct. 31.

Sterling was last down 0.44% at $1.216. It was also weaker against the euro by 0.52% at 91.66 pence, after touching a two-year low of 91.88 pence.

"Clearly in the UK, sterling is moving due to local political developments - most importantly the idea that Prime Minister Johnson may not want to meet European leaders unless they change their position, which is a more hardline stance than the market would have expected as recently as a week ago," said Jalinoos.

The Japanese yen was last up by 0.16% at 108.62 yen per dollar after the Bank of Japan on Tuesday maintained its pledge to keep short-term interest rates at a negative 0.1% via aggressive bond purchases, as expected.

"The Bank of Japan meeting did not deliver anything materially new. There was a minor change in the wording of the statement, but it does appear that Japan is going to wait and see what materializes from the Fed and ECB before taking action," said Jalinoos.

(Reporting by Kate Duguid and Olga Cotaga; Editing by Richard Chang)

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