LONDON, Dec 13 (Reuters) - The dollar edged up on Wednesday ahead of the conclusion of a Federal Reserve policy meeting that could offer some insight into when the U.S. central bank will begin lowering interest rates.
Sterling was among the weakest performers on the day, after data showed the British economy contracted in October, raising the risk of a recession and potentially complicating the efforts of the Bank of England (BoE) to stick to its stance against cutting rates when it meets on Thursday.
The U.S. dollar index, which gauges the performance of the currency against six others, was up 0.2% at 103.94, recouping most of the previous day's 0.31% drop.
Fed officials will give updated economic and interest rate projections later in the day following a meeting at which analysts and investors expect rates to remain unchanged.
In particular, investors will be watching to see if Fed Chair Jerome Powell pushes back against the prospect of interest rate cuts in the first half of 2024, but also what the central bank's so-called "dot plot" says about policymakers' thinking regarding the outlook for monetary policy.
Recent signs have pointed to a soft landing, but data overnight showed consumer prices unexpectedly rising in November. The futures market shows traders currently expect as many as four quarter-point rate cuts next year, with the first coming as early as May.
The dot plot could prove more instrumental in setting market expectations than even Powell's comments, OANDA strategist Craig Erlam said.
"We cannot expect the Fed to align its message with what markets are currently pricing," he said.
"It doesn't mean we'll see aggressive push-back, as we have before, but obviously, it's all in the dot-plot at this point. It's almost irrelevant what (Powell) says if the dot plot is pricing in four rate cuts next year."
James Kniveton, senior corporate FX dealer at Convera, reiterated the Fed's insistence that it is data dependent, but the market "is already acting like rate cuts are baked in".
"If the Fed does push back tonight on those rate cut expectations, the dollar index may have an opportunity move back into the October range of 105-107," he said.
The European Central Bank, the BoE, the Norges Bank and the Swiss National Bank meet on Thursday. The Norwegian central bank is considered to be the only one that could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in currency markets.
The Bank of Japan (BOJ) meets next week, and the yen has been volatile on speculation the central bank is drawing close to ending its negative rate policy. Rising hopes this may occur next Tuesday were dashed after Bloomberg reported this week that BOJ officials see little need to rush to the exit.
The dollar rose 0.16% to 145.67 yen, following a 0.5% decline in the previous session. It was a touch stronger against the euro at $1.0786, and up 0.3% against the pound, which traded at $1.2525 after the UK GDP figures.
"The October figures mean that we are on track for a marginally negative 4Q GDP print in the UK, although that is not at the top of the Bank of England’s concerns at the moment. We still expect a hawkish tone tomorrow to give some help to sterling, especially in the crosses," ING strategist Francesco Pesole said.
Top cryptocurrency bitcoin eased 0.3% to $41,320, having retreated from Friday's 20-month high at $44,729.
(Additional reporting by Kevin Buckland in Tokyo; Editing by Michael Perry, Jamie Freed, Sharon Singleton and Alex Richardson)
