The dollar has enjoyed a monthlong rally, with the dollar index up about 2.3% since the Fed’s June meeting, after a hawkish shift from the U.S. central bank.
Graphic: The Fed and the dollar: https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgmbgypb/Pasted%20image%201627479604445.png
Investors are eager to see whether the Fed will provide any clues on the timing of the tapering of its asset purchases.
“On days like this there is always a little bit of trepidation,” said Minh Trang, senior FX trader at Silicon Valley Bank.
“It’s kind of slow play till the news comes out,” he said.
While foreign exchange analysts said the chances were high that the Fed would not shift policy, they were curious to hear more about the bank’s thinking on the recent spike in inflation and on whether it thinks growing COVID-19 cases could derail the global recovery.
The Fed publishes a statement at 2 p.m. EDT (1800 GMT), followed by a news conference held by Chair Jerome Powell at 2:30 p.m. (1830 GMT).
“We go into the meeting with positive dollar bias,” said Adam Cole, chief currency strategist at RBC Capital Markets.
“The hurdle is quite low for the Fed to be perceived to be erring on the hawkish side, and that’s my bias going in.”
The Chinese yuan pulled away from three-month lows hit on Tuesday, when it saw its biggest daily losses since October, after the country’s stock market stabilized following a bruising couple of days.
The yuan’s bounce was modest, however, and the risk-sensitive Australian and New Zealand dollars were both subdued as sentiment remained fragile.
Elsewhere, the British pound was little changed on the day, remaining close to the near-two-week high touched on Tuesday, with analysts attributing its firm tone to COVID-19 cases in Britain declining over the last seven days.
Bitcoin was about flat on the day, two days after it broke above $40,000 for the first time in about six weeks, short sellers bailed out and traders drew confidence from recent positive comments about the cryptocurrency by high-profile investors.
(Reporting by Saqib Iqbal Ahmed in New York and Tom Wilson in London; Additional Reporting by Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa, Catherine Evans and Jonathan Oatis)