By Sara Sjolin, MarketWatch
Euro continues to rise as Catalonia independence fears ease
The dollar traded in tight ranges on Wednesday as traders waited for minutes from the Federal Reserve's latest meeting to get a steer on future monetary policy.
Meanwhile, the euro continued to push higher after Catalan President Carles Puigdemont suspended the independence process for the region and instead said he wanted to negotiate with Spain first.
Where are currencies trading?
The ICE dollar index was marginally lower at 93.283 after falling for three straight sessions.
The euro rose to $1.1818 from $1.1808 on Tuesday, hanging on to gains logged in Tuesday's session after fears of a Catalonia secession declaration eased.
The pound fell to $1.3190 from $1.3204 on Tuesday as traders continued to assessed the lack of progress in Brexit talks ahead of a key summit of European leaders next week.
In Japan, the yen advanced with the dollar buying Yen112.22 compared to Yen112.45 on Tuesday.
What's driving the market?
Euro investors were encouraged by Puigdemont's speech late Tuesday in Barcelona where the Catalan leader said he accepted the mandate of forming an independent republic, but pushed back the separation process to engage in a dialogue with Madrid.
However, Prime Minister Mariano Rajoy on Wednesday fanned the flames in the conflict , suggesting he's edging toward suspending Catalonia's autonomy.
In the U.S., the focus was on the minutes from Federal Open Market Committee's meeting in September that are due at 2 p.m. Eastern Time. At the meeting on Sept. 20, the central bank said it would start to reduce the size of its balance sheet in October and signaled a December rate increase remains on the table.
What are analysts saying?
Jane Foley, senior FX strategist at Rabobank, said in a note that the potential rate rise is largely baked into the dollar price now, with the futures market now implying a 77% probability of a tightening in December.
"The USD may therefore not be able to glean significant support from Fed policy this year particularly given speculation that a December rate hike could suppress inflation potential and so reduce the overall trajectory of Fed rates this cycle," she said.
Regarding the euro, Craig Erlam, senior market analyst at Oanda, said the reason the shared currency hasn't rallied more is because there was never significant downside during the height of the Spain crisis.
"The euro has been broadly immune to the Catalonia referendum so far, which may reflect the importance of the region to the eurozone (rather than just Spain) or the belief that it will not succeed in becoming an independent state, which seems likely. Should it succeed, I would expect the euro to react more than it has, due to the precedent that it could set," he said.