The dollar steadied against the yen and euro on Tuesday as a surge in Treasury yields was tempered and as the market braced for the outcome of the Federal Reserve's policy meeting starting later in the day. The euro was little changed at $1.0629. The common currency had gained 0.7 percent overnight, helped by higher German bund yields and on relief as Rome was seen ready bail out Italian bank Monte dei Paschi di Siena. The dollar was nearly flat at 115.140 yen. It climbed overnight to as far as 116.120, its highest since early February as the benchmark 10-year Treasury yield popped above the 2.5 percent threshold on a surge by oil prices to a level unseen since September 2014. The greenback, however, retraced its gains as Treasury yields ended Thursday significantly below their peaks. "The dollar will continue to have 120 yen in its sights. But a 25 basis points rate hike by the Fed is also significantly priced in, and the dollar is likely to be locked in between trend following bulls and profit-takers," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. Fed fund futures show a 97 percent probability that the Fed will lift rates by a quarter of a percentage point, according to the CME Group. The markets will be watching for clues about the pace of hikes in 2017, eager to know if the U.S. election resulting in Donald Trump's victory has reshaped the central bank's growth and inflation outlook. Speculation that the Fed would hike more times in 2017 than expected prior to Trump's win has been a factor that has propelled the dollar higher over the past month. "I don't expect a ‘buy on rumour, sell the fact' scenario in which the dollar slips after the Fed delivers a rate hike," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. "The Fed's dot plot could be revised higher. Furthermore, the dollar is still in the middle of an uptrend fuelled by prospects of monetary tightening accompanying large fiscal spending under Trump." The Fed's "dot plot" graph represents the interest rate moves expected by its members. The dot plot from the previous Fed meeting in September showed that policymakers anticipated hikes in 2017. The dollar index stood effectively flat at 101.00 after slipping about 0.5 percent overnight on the euro's bounce. Elsewhere, the gain in crude oil prices buoyed commodity-linked currencies with the Norwegian crown gaining 0.7 percent against the dollar on Monday. The Canadian dollar was little changed at C$1.3124 per dollar following an overnight rise to a 2-month peak of C$1.3110. The Australian dollar was steady at $0.7501 after adding 0.6 percent the previous day. The New Zealand dollar was also flat, at $0.7196 following a gain of 0.7 percent on Monday. Oil rose to an 18-month high on Monday after OPEC and some non-members reached their first deal since 2001 to jointly reduce output to tackle global oversupply. Source: Reuters
