The dollar moved further away from recent 20-year highs on Wednesday ahead of the U.S. Federal Reserve’s policy meeting, where the central bank is expected to raise rates another 75 basis points to rein in soaring inflation. But movements in the currency markets were modest as traders await the policy announcement at 18:00 GMT.

Money markets are betting that the Fed will raise rates by 75 basis points (bps), with an outside chance of a bigger hike of 100 bps. Traders expect the Fed to raise the rate to 3.4% by the end of the year to help bring inflation back to its target. Bets on oversized rate hikes helped push the dollar index, which measures the dollar against a basket of six currencies, to its highest level in nearly 20 years earlier this month at 109, 29, with the greenback currently up 2.1% in July.

At 10:55 GMT, the dollar index fell 0.2% to 106.93. “Markets are pulling back from the table a bit ahead of tonight’s Fed meeting,” said Simon Harvey, head of currency analysis at Monex Europe. “With no imminent headlines on European energy or political developments, I think we will see very limited ranges.”

The euro edged up 0.33% to $1.0149 but failed to recoup much of Tuesday’s 1.0% decline, its biggest drop in more than two weeks, after fears of a European recession intensified as Russia further cut gas supplies to Europe via the Nord Stream 1 pipeline. Analysts said it remained premature to sell the dollar given the situation in the gas in Europe and rising yields in the European periphery, particularly in Italy.

Italian yields rose further on Wednesday after ratings agency S&P Global revised its outlook on Italy’s rating from stable to positive, pushing the closely watched spread between German and Italian 10-year yields to 250 points. basic. “Most factors are still in favor of the dollar,” said Vincent Manuel, chief investment officer at Indosuez Wealth Management. He cited the macroeconomic backdrop between the US and the eurozone, widening peripheral spreads, the European energy crisis and the relative pace of monetary policy normalization.

The Australian dollar rose 0.12% to $0.69455 as Australian inflation hit a 21-year high last quarter, although the figure was not as high as some investors feared and some rate hike bets have been withdrawn. Traders are now pricing in a roughly 86% chance of a 50bp rate hike by the RBA next week, and 14% of a more modest 25bp hike.

The dollar fell 0.2% to 136.69 yen. Against the safe-haven Swiss franc, the dollar also fell 0.2% to $0.9612. In cryptocurrencies, bitcoin held steady at $21,301.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)