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The US dollar remained steady against a basket of major currencies on Wednesday as investors watch out for hints with the Federal Reserve’s course of action for its next monetary tightening.

The central bank will be wrapping up its two-day meeting later in the day which is likely to keep interest rates unchanged but investors will be keeping a close eye for any clues on whether it might announce another rate increase this year and when it will start cutting its $4.2 trillion bond portfolio.  

Federal funds futures pointed out that traders saw a possibility of a rate hike in September at about 8 percent as well as a 48 percent increase in December.

On the other hand, a firmer policy message by the Fed would likely boost US yields and lift the dollar.

Head of trading in Asia-Pacific Stephen Innes said that there may also be the possibility that the bank will start trimming its balance sheet in September.

But Innes stated that such hint from the Fed is not that big of a shock and might not help much in lifting the US dollar adding that it will be the inflation language where a potential dovish shift will appear.

Major Currencies

The US dollar index which gauges the greenback against six primary currencies, added 0.04 percent to 94.13 recovering from Tuesday’s loss of 93.63, its weakest level since June 2016.

The dollar was down 0.06 percent to 111.80 against the yen after getting a 0.7 percent boost on Tuesday.

It is possible for USD/JPY to recover if the Fed’s current dovish turn may be seen as less dovish than recently expected. The pair must also be able to make a breakout above the 112.00 level as it could pull them back up to a significant resistance target around the 114.50 level.

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The greenback continued its gains against the Swiss franc adding 0.5 percent to 0.9577 while it bounced back from earlier loss against the euro gaining 0.06 percent to 0.8588.

The US currency fell after previous recovery against the Canadian dollar by 0.01 percent to 1.2503 as well as the British pound slipping 0.09 percent to 0.7670.

Asian Currencies

Most Asian currencies were down on Wednesday ahead of Fed’s policy statement happening later in the day.

Thai baht rebounded 0.01 percent to 0.0298 against the dollar as the Bank of Thailand (BOT) announced new policies to tighten controls on credit cards and unsecured personal loans amid concerns over huge household debt and growing bad loans.

The Philippine peso also went back up with 0.1 percent boost to 0.0197 against the greenback after hitting a one-week high on Tuesday while the Taiwan dollar edged higher by 0.3 percent to 0.330.

The South Korean won took a rest from its recent two-week rally against the US dollar as it lost 0.3 percent to 0.0271 on Wednesday.

Head Commodities and Asia-Pacific Forex Dominic Schnider said that the current export figures from South Korea have been encouraging. For now, with fundamentals looking better in the region, the won is still one of the top performers.

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