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Dollar rates flat ahead of Fed decision

The US dollar traded virtually flat against other major currencies on Tuesday ahead of the Federal Reserve's update of monetary policy, which many expect will see another stimulus cutback.

NEW YORK: The US dollar traded virtually flat against other major currencies on Tuesday ahead of the Federal Reserve's update of monetary policy, which many expect will see another stimulus cutback.

Economists believe the Federal Open Market Committee (FOMC) will shrug off poor December jobs numbers and turbulence in emerging markets and announce Wednesday another $10 billion reduction in its bond-buying programme, taking it to $65 billion a month.

But they said that was already built into forex pricing, and the key will be how the Fed characterizes US growth, amid some recent conflicting data.

At 2200 GMT the euro was trading at $1.3667, compared with $1.3670 late Monday.

The dollar edged slightly higher to 102.97 yen from 102.56 yen, and the euro rose to 140.73 yen from 140.21

Meanwhile the dollar bought 0.8973 Swiss franc, compared with 0.8969 franc Monday.

And the British pound was flat at $1.6580, after London reported the British economy grew 0.7 percent in the final quarter of 2013, for a full-year 1.9 percent, the fastest pace in six years.

Markets broadly assumed a second cut to the Fed's quantitative easing (QE) programme, after the first taper in December.

Barclays analysts said they did not see a new $10 billion cut to be market-moving.

"Rather, any surprises would stem from the Fed's characterisation of the economy and the implications for the hiking cycle," they said in a research note, referring to the longer-term outlook for the Fed's benchmark interest rate.

"Given the strengthening of activity data since the December FOMC, we expect the Fed to upgrade its assessment of the economy," they said.

In that case, they added, "it would convey that the Fed remains on track to exit QE at a steady pace, which may be perceived as hawkish."

FOMC members have made it repeatedly clear that they do not see the rate rising off its ultra-low level, now 0-0.25 percent, before 2015.

But Barclays thinks the market perception of this timeline could change if the FOMC paints a brighter picture.

Meanwhile the Barclays analysts also said they expect the European Central Bank to decide in February or March to cut its base rate, which could weaken the euro against the dollar.

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