Dollar holds below 2-1/2 week highs before Fed decision

© Reuters. FILE PHOTO: Saudi riyal, yuan, Turkish lira, pound, U.S. dollar, euro and Jordanian dinar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

By Saikat Chatterjee

LONDON (Reuters) - The dollar held below a 2-1/2 week high on Wednesday as risk sentiment stabilised before a Federal Reserve meeting at which policymakers are widely expected to signal readiness to start raising interest rates from March.

Markets have been on a rollercoaster ride this week as the combination of a hawkish Fed and slowing growth have unnerved investors, prompting them to dump high-flying technology shares and seek refuge in safe-haven assets such as the dollar.

The currency briefly touched a Jan. 7 high of 96.30 against a basket of currencies on Tuesday before ending below that level.

In relatively quiet trading on Wednesday, it was a shade higher at 96.07 with U.S. stock futures up more than 1%, indicating a stronger start on Wall Street.

"A hawkish hold is widely expected as the Fed sets the market up for liftoff at the next meeting on March 15-16 with markets keen to see any clues on how soon the Fed will allow balance sheet runoff," Brown Brothers Harriman strategists said.

Citibank strategist Ebrahim Rahbari said investors' appetite for riskier assets such as stocks and emerging market currencies were playing a more important role for the dollar than the expected Fed rate hike trajectory.

Traders waited both for more clues on the timing and pace of U.S. interest rate hikes and how the central bank will go about slimming down its almost $9 trillion balance sheet, a process dubbed quantitative tightening (QT)

"Market sentiment remains fragile," TD Securities strategists said, noting that "any hints 'around the starting point for QT or 'sooner' and 'faster' on hikes could be market-moving."

Money markets price in a first Fed rate rise in March, followed by three more quarter-point increases by year-end.

The euro slipped 0.1% to $1.1286 after hitting $1.12640 overnight, its lowest since Dec. 21.

Against the Swiss franc, the euro stabilised at 1.0385 francs per euro, not far from a mid-2015 low of 1.03 hit on Monday.