Daily Market Lookup

The dollar held its recent gains in Asian trading on Wednesday as investors looked towards a key Federal Reserve policy meeting to see if it would reinforce growing market expectations for earlier and additional rate rises next year. The dollar's gains have been broad-based, though daily moves were muted ahead of the Fed decision But the Federal Reserve meeting due to wrap up later in the day stood out as the centrepiece of a week full of central bank meetings. She said traders were watching the U.S. Federal Open Market Committee for two things: firstly whether they accelerate tapering of their bond buying programme, and secondly whether policymakers bring forward their projections for interest rate rises, in their so-called “dot plot”. Markets have been pricing for the Fed to wrap up bond-buying around March and then proceed with one or maybe two rate hikes in 2022. ECB officials are set to call time on the central bank's Pandemic Emergency Purchase Programme (PEPP), but investors will look to see how the six-year old Asset Purchase Programme (APP) may pick up the slack. Elsewhere, a Reuters poll showed analysts have reversed earlier expectations that the Bank of England will raise rates on Thursday, because of the spread of Omicron in Britain. The dollar was down on Wednesday morning in Asia, but moves were small as investors bet on the U.S. Federal Reserve hiking interest rates quicker than expected in 2022 from its policy meeting later in the day. Around 20 key central banks will hand down their policy decisions throughout the week, with the Fed handing down its policy decision later in the day. She added that investors were watching the Fed meeting for two reasons, firstly whether the central bank will accelerate asset tapering and secondly whether it will bring forward their projections for interest rate rises, known as “dot plots”. They are betting the Fed will complete asset tapering between $25 billion-$30 billion per month, from $15 billion currently, by March 2022. They also predict one or two interest rate hikes in the same year. A figure at the lower end of that range could cause some short-term dollar weakness, said Mundy. The Bank of England (BOE) will hand down its policy decision on Thursday. The BOE is expected to keep interest rates steady, according to a Reuters poll, with the U.K. reporting the first death linked to omicron on Monday, according to Prime Minister Boris Johnson. The European Central Bank will also hand down its policy decision on Thursday, followed by the Bank of Japan a day later.

Gold was down on Wednesday morning in Asia, as investors await a decision on asset tapering and earlier interest rate hikes by the U.S. Federal Reserve in its latest policy decision. The Feds two-day policy meeting is set to wrap up later in the day, where it will hand down its policy decision. Investors are betting that the Fed will taper its assets between $25 billion-$30 billion every month, from $15 billion currently, by March 2022, and also expect one or two interest rate hikes in the same year. The Bank of England, the European Central Bank will hand down their policy decisions on Thursday, followed by the Bank of Japan (BOJ) on Friday. According to a Reuters poll, the BOE is expected to keep interest rates unchanged given that the U.K. reported the first death linked to omicron on Monday, according to Prime Minister Boris Johnson. On the data front, U.K. payrolls rose by a record 257,000 in November, putting the BOE in a dilemma as it frames its decision. Meanwhile, BOJ Governor Haruhiko Kuroda said the country's consumer inflation could hover near 2%, indicating an increase in raw material costs.

Oil prices fell for a third day straight on Wednesday on growing expectations that supply growth will outpace demand growth next year, even though the Omicron coronavirus variant is not seen curbing mobility as sharply as earlier COVID-19 variants. The International Energy Agency (IEA) on Tuesday said a surge in COVID-19 cases with the emergence of the Omicron variant will dent global demand for oil at the same time that crude output is set to increase, especially in the United States, with supply set to exceed demand through at least the end of next year. In contrast, the Organization of the Petroleum Exporting (OPEC) on Monday raised its world oil demand forecast for the first quarter of 2022. Energy consultancy FGE said it has a more optimistic outlook than the IEA as the consultancy expects a smaller surplus of 400,000 barrels per day, based on a comparatively lower demand risk from Omicron, against IEA's forecast of 1.7 million bpd in the first quarter Also weighing on the market is a firming U.S. dollar, which makes commodities priced in the greenback more expensive for other countries. Markets are awaiting the outcome of a key U.S. Federal Reserve policy meeting on Wednesday for signs of when the central bank may raise interest rates. In another bearish indicator, industry data showed that U.S. crude inventories last week did not decline as much as expected. American Petroleum Institute data showed U.S. crude stocks fell by 815,000 barrels in the week ended Dec. 10, according to market sources, compared with a 2.1 million barrel drop that 10 analysts polled by Reuters had expected. However, distillate stocks fell by 1 million barrels, compared with analysts' forecasts for an increase of 700,000 barrels, and gasoline stocks rose by 426,000 barrels, which was a smaller build than expected. Weekly data from the U.S. Energy Information Administration is due later on Wednesday.