The USD/THB exchange rate is trading at the trendline resistance, near the 36 baht per dollar level, ahead of the U.S. Federal Reserve’s decision on a rate hike liftoff after the FOMC meeting tomorrow. The probability of a rate hike based on the 30-day prices of federal funds futures stands at 81%, according to data from the CME Group as of December 15, meaning a rate hike could already be priced in. The tone of the Fed’s policy statement, either dovish or hawkish, could spark a big move in the forex market. The market is expecting a “one-and-done” rate hike event, for a considerable length of time. Thus, the dollar could sell off and the USD/THB could pull back.

One of the reasons that the dollar could be under selling pressure is because the People’s Bank of China (PBoC) just lowered the daily reference again, to 6.4559 yuan a dollar on Tuesday, the lowest since July 24, 2011, according to the PBoC’s China Foreign Exchange Trade System. Since China stunned financial markets by devaluing the yuan on August 10, the PBoC move would be to sell dollars to support the yuan. Thus far, there hasn’t been any decisive intervention from the PBoC, but traders are expecting the bank will act after the FOMC meeting.

Hedge funds have increased their net long positions of euro FX contracts, meaning sell dollars to buy euros, after a hawkish move by the European Central Bank (ECB) at the Governing Council meeting in Frankfurt by announcing rate cuts below market expectations without any expansion of the 1.1 trillion euro bond-buying program. 

Goldman Sachs is also backtracking on their call for euro-dollar parity. According to The Wall Street Journal, Goldman’s chief FX strategist Robin Brooks wrote in a note last Monday that the bank now sees the euro at $1.07, $1.05 and $1 in three, six and 12 months, respectively. Previous forecasts for those time horizons had been $1.02, $1 and $0.95. Goldman Sachs had said in March that the euro would hit parity with the dollar by September.

Another headwind for the dollar is the U.S. high-yield bond market, which sooner or later will blow up, according to Carl Icahn, activist investor and fund manager of $30 billion Icahn Capital Management. Tumbling crude oil prices put more of a squeeze on small energy companies that sell high-yield, or junk bonds, to finance their operations. There could be as much as $212 billion worth of U.S. energy junk bonds out there, according to Bank of America Merrill Lynch. Standard & Poor's Ratings Service recently warning that a 50% of energy junk bonds are "distressed," meaning they are at risk of default.