The U.S. dollar edged higher against most major currencies on Wednesday, ahead of the Federal Reserve's first monetary policy decision chaired by its new leader, Kevin Warsh. The meeting could trigger market volatility as investors adjust to a new style of policymaking and communication.
The euro fell 0.16% to $1.1591, while the British pound declined 0.15% to $1.3400. U.S. President Donald Trump stated that the memorandum of understanding with Iran was not a final agreement, and bombing could resume if the U.S. was unsatisfied, which provided some safe-haven support for the dollar.
However, the main market event was still to come, with investors hesitant to take large positions before the conclusion of the Fed's policy meeting.
The market widely expects Warsh's inaugural meeting to leave interest rates unchanged. However, traders will scrutinize the policy statement, economic projections, and press conference for any signals that the Fed might abandon its accommodative policy bias, as officials' views on inflation risks have become increasingly hawkish.
Jane Foley, head of FX strategy at Rabobank, noted: "Several central banks are meeting this month, but the focus on this Fed meeting far outweighs all others."
"There is significant uncertainty about the policy signals Warsh will send. While no one expects a rate change, will he downplay the guidance from the dot plot? Will he establish a new monetary policy framework? Or will he steer market expectations toward further easing?" she said.
The dot plot illustrates Fed policymakers' expectations for future interest rates. Warsh was appointed by President Trump, who had repeatedly criticized former Fed Chair Jerome Powell for being too slow to cut rates.
Money market pricing suggests an approximately 80% probability of a Fed rate hike within the year.
Before the U.S. and Iran agreed to a temporary ceasefire in the Middle East conflict, economists had speculated the Fed might signal a willingness to raise rates to curb the risk of soaring energy prices feeding into broader inflation.
With international oil prices now retreating below $80 per barrel, the Fed may deliver a very different policy message.
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