Dollar Steady Ahead of Fed Policy Debut Under Warsh
The US dollar held steady against most major currencies on Wednesday (June 17th), as investors awaited the first Federal Reserve policy decision under Chairman Kevin Warsh. Markets believe this meeting could trigger volatility as investors adjust their expectations for the Fed's new communication style and policy direction.
The euro was flat at $1.1605, while the pound weakened slightly against the dollar to $1.3420 and against the euro to 86.5 pence. Pressure on sterling emerged after weaker-than-expected UK inflation data, giving the Bank of England room to take a slow interest rate hike this year.
The main focus remains on the Fed. The US central bank is widely expected to keep interest rates unchanged at Warsh's first meeting. However, the policy statement, economic projections, press conference, and dot plot will be closely watched to see if the Fed begins to remove its easing bias amid growing concerns about inflation risks.
Currency markets currently reflect a roughly 80% chance that the Fed will raise interest rates this year. Before the US and Iran reached a tentative deal to end the Middle East war, some economists expected the Fed to leave room for interest rate hikes to limit the impact of the energy boom on broader inflation. However, with oil prices back below $80 a barrel, the policy tone could be more balanced.
The Bank of England will also announce its decision on Thursday, with markets expecting no change in interest rates. Recent data showed UK inflation held at 2.8% in May, unchanged from a 13-month low in April. Currently, markets still see the possibility of one BoE rate hike by the end of the year.
In Asia, the yen stood at 160.25 per dollar, strengthening slightly but still weak enough to keep Japanese authorities wary of potential intervention. The Bank of Japan on Tuesday raised interest rates to a 31-year high as part of its policy normalization program, but has not given a clear indication of the timing of the next hike.
The Swedish krona weakened against the dollar and euro after the Riksbank kept interest rates unchanged. The Swedish central bank cited the Middle East war as increasing inflationary pressures and raising the prospect of a rate hike, but low underlying inflation and weaker economic activity keep policy cautious. The forex market's next focus will be on the language of the Fed's statement, the dot plot, the direction of oil prices, and the dollar's response to Warsh's first communication. (arl)
Source: Newsmaker.id
