USD: what to expect from the Fed?
The Federal Reserve’s meeting results will be announced at 19:00 GMT.
As the ECB has announced QE last week and other regulators have moved to the more dovish side, the US dollar will likely continue strengthening versus other major currencies in the long term. Stronger USD could slow American economic growth & inflation. As a result, the Fed may decide not to hurry with raising the interest rate later this year from near zero.
For now the Fed’s officials haven’t been very worried about the effects of stronger USD on the economy, because exports account for only 13% of the US GDP. At the same time, low inflation exacerbated by the falling oil prices will likely make the FOMC (Federal Open Market Committee) members more cautious: US consumer price inflation has run below the Fed’s 2% target for 31 straight months, and US producer prices fell in December by the most in 3 years.
The FOMC will likely repeat that it “can be patient in beginning to normalize the stance of monetary policy” and can make some slightly dovish comments about inflation. In this case USD will correct down a bit more providing traders a chance to re-establish longs.