Six weeks after the Federal Reserve raised interest rates, the dollar is up more than 1 percent as traders wait for signs of the central bank's next move.

The greenback swung between gains and losses Wednesday against most of its major peers as traders weighed whether the market turmoil that has greeted the start of 2016 will prompt U.S. policy makers to signal a slower pace of interest-rate increases.

Traders are jittery before central-bank meetings this week in the U.S., Japan, and New Zealand amid speculation that policy makers will be forced to address volatile markets. The greenback has rallied for the last two years on speculation that the Fed will boost borrowing costs in contrast to easing by its global peers.

“The market is cautious ahead of the Fed meeting,” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. “The talk is that the Fed will sound dovish. We think that they will not make a reference to the March meeting for the next hike, but direct expectations more towards June.”

The bank forecasts the dollar will strengthen to parity with the euro and 130 yen by the end of the year.

The Bloomberg Dollar Spot Index was little changed at 1,248.00 as of 11:48 a.m. in New York. The greenback was at $1.0873 per euro and 118.87 yen.

Hedge funds and other money managers increased net bullish bets on the dollar for the first time in four weeks last week, according to data from the Commodity Futures Trading Commission. Bullish positions on the greenback against eight major currencies outweighed bearish bets by 318,645 in the period to Jan. 19, up from 303,113 the week earlier, the data showed.

Before the current turmoil, Fed officials indicated they expected four interest-rate increases in 2016. The probability of an increase this week has stayed low after the December liftoff, and chances the Federal Open Market Committee (FOMC) will raise borrowing costs in March have fallen to 27 percent from even odds at the start of the year.

Strategists at BNP Paribas SA recommended buying the dollar against the euro, Swiss franc, yen, and Australian dollar going into the meeting.

“We expect today's FOMC statement to acknowledge recent market stress and mixed data, but to emphasize the favorable medium-term outlook and healthy labor market in an effort to maintain leeway to hike again in March,” strategists including Steven Saywell, the bank's global head of foreign exchange strategy, said in a note. “A result in line with our expectations should be U.S. dollar-supportive.”

Instant Insights /

Where the Dollar Goes from Here Depends on the Fed

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