In view of realized and expected labor market conditions and inflation, the Committee chose to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.
Markets are expecting Janet Yellen and the central bank to announce that it will start to reduce a $4.5tn balance sheet which has been inflated by the government bond buying scheme or quantitative easing program, used by the central bank to stimulate the economy after the 2008 financial crisis. "I don't expect that the dollar will strengthen very much over the course of today's session", said Commerzbank's head of FX strategy, Ulrich Leuchtmann in Frankfurt.
News about the beginning of the reduction of the balance sheet, together with forecasts of a rate increase this year and three hikes in 2018, helped Dollars to strengthen sharply yesterday.
"Even if the dollar gets stronger, it will not be on a scale comparable to yesterday, because I think the outlook is still uncertain and the Fed for a long time had promised to hike rates much more aggressively than they normally did".
Regarding oil prices, WTI crude jumped by nearly 1% to $49.97 per barrel while London-based Brent surged by 0.51% to $55.42 after Iraq's energy minister, Jabar al-Luaibi, said on Tuesday at an energy conference in the United Arab Emirates that OPEC members.as well as other oil producers, are considering the option to extend or widen supply cuts a day after the API weekly report indicated a smaller than expected rise in U.S. inventories. The Fed sees more hiking than the market with three in 2018 (market is pricing in 1), two in 2019 (market pricing is about one-third of a hike) and one more in 2020.
The U.S. central bank is expected to release its latest policy statement at 2 p.m. (1800 GMT) after a two-day meeting where investors expected policymakers would decide to embark on a reduction of the Fed's $4.5 trillion balance sheet in October.
Currencies showed limited reaction to the Bank of Japan's widely expected decision to stand pat on monetary policy.
In line with this view, BofAML maintains a short EUR/USD* position targeting 1.15 with a stop at 1.21. On the day, it managed to chalk up a decent 0.4% rally to 1.3551, testing at the higher range.
Against the euro, sterling traded 0.14% higher to 1.1364, finding resistance in this area, which was also the overnight high. This article is strictly for informational purposes only. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.