USDind steady above 105 ahead of Fed meeting

It’s been a relatively quiet start to the week in FX markets ahead of a plethora of central bank meetings and important economic data.

Biggest of the lot is surely the FOMC meeting as it has been eight weeks since their last decision in July.

The Fed is widely expected to keep rates unchanged in its second pause of the year.

Policymakers raised rates to a 22-year high two months ago, but they will keep their powder dry after the summer break, keeping their options open as they plot their way forward in an uncertain environment.

It seems highly likely that Chair Powell will not pre-commit to any policy action.

Certainly, Powell will also be conscious of the recent run of hot activity data which means he won’t declare victory in the fight against price pressures which recently ticked up due to rising energy costs.

This points to a hawkish flavour to proceedings.

As well as the statement and press conference, the updated dot plot will be a key focus as the June forecast pointed to one more hike this year.

This seems very likely to remain, though markets only give it a 40% chance with headwinds on the horizon.

Attention will also be paid to the projected cuts of around 100bps embedded into the most recent median 2024 plot.

There could be a possible scaling down in this to reaffirm the Fed’s commitment to “higher-for-longer” rates going forward.

The dollar will be prone to volatility during the meeting, especially if the economic projections or dot plot see big revisions.

The greenback has enjoyed nine consecutive weeks of gains. Streaks of this type, extending into double figures, are rare so the broader uptrend could be ready for some consolidation.