The FOMC statement and new economic projections will be released at 19:00 GMT, followed by a press conference from Chair Jay Powell at 19:30 GMT. Economists at ING expect the Fed to signal a faster pace of tapering and show more concern over the path of inflation. This favours continued dollar strength against the EUR and JPY.

Dollar to stay supported as Fed shifts to the exit

“While short-term USD money markets seem to have quite a lot priced in for the next 12 months (nearly three 25bp hikes priced), the Fed cycle is still conservatively priced around the 1.35/40% area over the next two to three years. We think this pricing can shift closer to the 1.80% area and that should continue to be supportive for the dollar against the low yielders such as the euro and the yen.” 

“Three weeks of consolidation should have been enough for the dollar to correct overbought technical conditions and today's Fed meeting should be the catalyst for an upside breakout.”

“We think DXY could be ending today's US session above 97.”

USD/JPY could certainly come back into play too given that our debt strategy team favours a steeper US yield curve in 1Q22 with longer-dated US Treasury yields pushing ahead. Expect 115 in USD/JPY to be pressed again.”

“If tonight's Fed is as hawkish as we expect, EUR/USD should press the 1.1170/80 area later today, with a close below opening the door to 1.10.”