The U.S. Dollar stayed firm on Wednesday as investors awaited to find out if a decision by the Federal Reserve would bolster market expectations for rate increases in 2022.
The central bank’s policy statement and economic forecasts are due at 19:00 GMT.
Markets have been pricing for the Federal Reserve to conclude its bond-buying in March next year, and then follow on with one or perhaps two rake hikes during 2022. Should there be a chance of more than two rate increases next year, markets would consider this a hawkish surprise, Reuters reports.
Despite the spread of the Omicron Covid variant fuelling fears the economic recovery will be hampered, the Dollar has stayed strong over the past few weeks on forecasts of a hawkish stance by the Fed. There has been little change since the greenback hit 96.938 in November, the highest since July last year.
"We can’t recall going into an FOMC meeting with the consensus so strongly favouring a hawkish outcome," said MUFG head of research Derek Halpenny.
"(Fed chairman Jerome) Powell may emphasise the uncertainty of the guidance to such an extent this evening that it dampens the response… The scope for a big move for the U.S. Dollar this evening may be limited."
Dollar moves were subdued as investors awaited the Fed announcement, staying firm in Asian trading, then declining somewhat on the opening of markets in Europe, dropping 0.1% at 96.445. Against the Japanese Yen, the Dollar rose 0.1% at 113.7.
There was little overnight movement for currency markets following mixed economic data stemming from China, showing factory output grew faster than forecast, yet in contrast, retail sales fell short of expectations.
Moreover, the Euro rose 0.1% at $1.127 ahead of a European Central Bank meeting scheduled for Thursday, where it’s expected that officials will confirm that bond-buying will end in March 2022. Sterling rose briefly against the Dollar, up 0.4% at $1.3278.
Elsewhere, the Australian Dollar edged up 0.4% to $0.71335, whilst the New Zealand Dollar rose 0.2% to $0.6756.