NEW YORK: The dollar edged higher on Wednesday ahead of the conclusion of the Federal Reserve’s two-day policy meeting, the first to be chaired by Kevin Warsh, with markets closely watching for any signs of a hawkish shift from policymakers.
The Fed is widely expected to hold its benchmark rate steady in the range of 3.50 percent to 3.75 percent, though it may drop its easing bias from the policy statement. The US central bank will also issue its Summary of Economic Projections and the closely watched “dot plot,” offering markets a window into how Federal Open Market Committee members view the direction of monetary policy.
All eyes will be on the post-meeting press conference, where any signals Warsh offers on the Fed’s outlook will be critical as inflation remains stubbornly above the central bank’s 2 percent annual target.
Warsh, appointed by President Donald Trump, has suggested he will adopt a different governing approach from his predecessor Jerome Powell, with one notable distinction being his reluctance to commit to holding press conferences after every policy meeting, a practice Powell had instituted, though the Fed confirmed there will be one on Wednesday.
“We’re at a point now where we’ve probably reached maximum interaction between the Fed and the markets,” said Eric Theoret, a foreign exchange strategist at Scotiabank.
Powell remains a voting member of the FOMC as a governor. With inflation likely to dominate the press conference, traders will also be listening for any comments from Warsh on alternative inflation gauges he is known to favor, including the Dallas Fed’s trimmed mean measure, which points to softer price pressures than headline Personal Consumption Expenditures, or PCE.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.11 percent to 99.66, with the euro down 0.13 percent at USD1.1592.
The Bank of England meets on Thursday and, as with the Fed, no change in policy is expected, leaving the focus on the tone of policymakers’ commentary. That commentary could be shaped in part by Wednesday’s UK inflation data, which showed prices unexpectedly held at 2.8 percent in May, unchanged from the 13-month low reached in April. Markets currently see one BoE rate hike by year-end.
Sterling was last down 0.19 percent at USD1.34.
The yen firmed 0.12 percent to 160.22 per dollar, still keeping traders on alert for potential intervention by Japanese authorities to support the persistently weak currency.
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