A man counting US dollar bills. Image Credit: File photo

The US dollar languished close to one-week lows on Wednesday as investors wagered the Federal Reserve would slow the pace of U.S. monetary tightening after its keenly-watched policy meeting later in the day.

The safe-haven yen and the Swiss franc held a firm tone in early Asian trade as an overnight plunge in oil prices provided yet another reminder of the deteriorating global growth prospects, and underscored why traders expect the Fed will likely be done after an expected rate hike this week.

“The positioning going into the FOMC meeting is very defensive and that’s why we are seeing the dollar weakening,” said Michael McCarthy, chief markets strategist at CMC Markets.

The yen and the Swiss franc were well bid at 112.37 and 0.9916 respectively, after posting three consecutive days of gains.

Risk sentiment has been scarred by weaker-than-expected economic data out of China and the euro zone, while the Sino-U.S.

trade dispute and a collapse in oil prices have added to fears the global economy is fast losing momentum.

In Asia, markets are looking to China’s three day Central Economic Working Conference (CEWC) meeting that starts on Wednesday for Beijing’s growth and reform objectives. A steady downturn in China’s economy this year has been one of the key drivers of asset markets, including currencies, over recent months.

The dollar index was down 0.2 per cent at 96.9, extending losses into the second day. The U.S. currency has also been pressured by a fall in the U.S. 10-year treasury yield , which has slipped by around 10 basis points in the last three days.

Nervous anticipation was palpable in global markets as they awaited the Fed’s decision later in the day, especially for its policy guidance for 2019 after what is expected to be its fourth rate hike for this year.

According to the CME Group’s FedWatch tool, the probability of a December rate hike is 69 percent, down from around 75 per cent last week, a significant move in such a short period.

While the U.S. central bank’s latest median dot plot projections from September indicated three more hikes in 2019, the rate futures market is pricing in only one more rate hike for 2019 - a shift that underscored growing signs of stress on the global economy that many believe will eventually crimp US growth.

However, some analysts still see the Fed raising rates 2-3 times in 2019.

“We do not see a downward shift in the Fed’s dot plots and so there is room for the dollar to strengthen...the euro is especially vulnerable for a sell-off,” CMC Markets’ McCarthy said.