On Wednesday, the dollar held strong as investors paused to see if the U.S. Federal Reserve would strengthen market expectations for rate hikes next year.
The Fed’s policy announcement and economic projections will arrive at 1900 GMT.
Markets have been pricing for the Fed to complete its bond-buying around March and then move with one or maybe two rate hikes in 2022. Anything more than two rate hikes penciled in for next year would be a hawkish surprise.
The Fed meeting arrives as the quick spread of the Omicron variant of coronavirus generates concern that the economic healing will be derailed.
But the anticipation of Fed hawkishness has kept the dollar firm in recent weeks. It has witnessed little movement since it hit 96.938 last month, its highest since July 2020.
Fed Chairman Jerome Powell may highlight the uncertainty of the direction to such an extent this evening that it drains the response. This evening, the scope for a big move for the U.S. dollar may receive restrictions.
The dollar’s moves became soft as investors awaited the meeting. It held firm in the Asian session, then dropped slightly as European markets opened, down 0.1% at 96.445.
Versus the Japanese yen, the dollar was higher 0.1% at 113.7
Elsa Lignos, global head of F.X. strategy at RBC Capital Markets, noted in a client note that if the Fed did not emphasize the interval between ending asset purchases and increasing rates. Alternatively, if markets repriced to predict a higher terminal rate, that would be a positive shock for the dollar.
Currency markets were little concerned overnight by mixed economic data from China. It indicated that factory output grew more rapidly than anticipated. However, retail sales missed projections.
The euro was up 0.1% at $1.127 beforehand of a European Central Bank conference on Thursday, where officials expect to confirm that the bank’s epidemic bond-buying program will end next March.