Dollar Falls Ahead of FOMC Announcement
The US dollar was lower against its major trading partners early Wednesday ahead of the Federal Open Market Committee’s announcement and the Federal Reserve Chairman Powell’s press conference.
While the 1.4% decline in Q1 GDP released last week may get the FOMC’s attention, decades-high inflation readings and the tight labour market give the Fed more than enough reason to follow through with the 50-basis-point rate increase that markets have priced in.
Any signals from the FOMC or from Powell on the future path of policy will be closely watched. In addition, the FOMC is expected to announce plans for reducing the holdings of MBS and Treasury securities on its balance sheet accumulated during the pandemic.
Before the FOMC announcement, Wednesday’s schedule includes a full slate of data, highlighted by ADP private payrolls, the S&P Global services PMI update, the ISM services reading, and EIA petroleum stocks.
A quick summary of foreign exchange activity heading into Wednesday shows that USD-CAD fell to 1.2806 from 1.284 at the Tuesday US close and from 1.2893 at the same point Tuesday morning.
The Canadian trade balance will be released Wednesday. The highlight of the week is Canada’s employment data released at the same time as the US report on Friday. The Bank of Canada next meets on June 1, when another 50-bp rate increase is expected, and a 75-bp hike is being priced in by some analysts.
USD-JPY fell to 130.0104 from 130.1445 at the Tuesday US close and 130.0727 at the same point a day ago. Markets are closed in Japan until Friday when the monthly inflation data will be released.
The pair remains elevated due to the different policy stances of the Bank of Japan and the Fed and could get wider if the FOMC’s announcement appears hawkish.
GBP-USD rose to 1.2519 from 1.2495 at the Tuesday US close and 1.2496 at the same point Tuesday morning. There is no UK data on Wednesday’s schedule. Bank of England Deputy Governor Sam Woods speaks, a day before the BOE meets and is expected to raise interest rates by 25 basis points.
EUR-USD ticked up to 1.0528 from 1.052 at the Tuesday US close and 1.0503 at the same point a day ago. READ: Dollar Trades Stronger After FOMC Hints at March Rate Increase
EU retail sales fell more than expected in March, data released earlier Wednesday showed, while the EU services PMI reached an eight-month high in April after PMI gains in Germany, France, Italy and Spain.
The European Central Bank is expected to hold rates steady at its meeting on June 9 despite rising inflation and could begin its tightening cycle at its July 21 meeting. # Dollar Falls Ahead of FOMC Announcement
