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Dollar Weakens on Rate Pause Speculation

The U.S. dollar softened on Tuesday in the global forex currencies exchange market, hurt by expectations the Federal Reserve would signal a pause in its near two-year campaign to tighten credit at this Wednesday`s monetary policy meeting, where it is widely seen raising interest rates for a 16th straight time. Several traders also partly attributed the heavy dollar selling to market talk about currency reserve diversification, a large Middle Eastern oil exporter looking to price oil in euros, and soaring gold prices.

"The expectation going into tomorrow`s Fed announcement is that they`re going to indicate a pause" in the accompanying statement, said Brian Dolan, director of forex currencies exchange market research at Gain Capital in Bedminster, New Jersey. "I think the market is leaning toward being short dollars going into the forex currencies exchange market statement," he added.

The Fed on Wednesday was thus widely expected to lift its benchmark overnight federal funds rate by a quarter-percentage point, from 4.75 percent to 5 percent, double the European Central Bank`s equivalent 2.5 percent rate. The forex currencies exchange market was also anticipating a U.S. Treasury report on currency practices of trading partners due on Wednesday, with investors focused on whether China will be named a country that manipulates its currency.