FX round-up: Currencies steady ahead of Fed statement

Currency markets were steady on Wednesday ahead of a key speech from the US Fed.

Due to be released at 1900 BST, the Federal Open Market Committee (FOMC) will publish their latest set of economic projections alongside a policy statement, followed 30 minutes later by a press conference from chair Janet Yellen.

This will arguably be the most anticipated communication from a central bank for the last three months as traders try to ascertain whether there will be another rate hike this year.

The main problems to contend with are the lull in inflation and a stronger global economy. Market participants do, however, anticipate some scheduled reduction in the approximately $4.2trn in bond holdings and mortgage-backed securities.

"Relative to the June forecasts there may be more participants anticipating no more hikes this year, but we don't think so many will switch to this view as to bring down the median," said Michael Feroli, chief US economist at JP Morgan.

Regarding the possibility the FOMC will hint at a rate hike before the year end, Jason Celente at Insight Investment said, "As long as employment remains robust and conditions don't deteriorate there is scope and willingness to go ahead."

With such a major risk factor looming, traders were unwilling to take on any risk in Wednesday trading.

The US dollar was little changed on the day by 1715 BST, with the dollar index steady at 91.744, down only 0.05%. The index has slid more than 11 percent this year, as expectations for pro-growth, pro-inflation policies from U.S. President Donald Trump have diminished, complicating the Fed's monetary policy path.

Sterling saw a good tick higher in early morning against the greenback, thanks to better than expected retail sales of 1%, and continued to hold on to those gains to trade 0.33% higher to 1.3554.

Interest rate hikes were also on the mind of the Bank of England (BoE) last week, with both BoE Governar Carney and MPC member Vlieghe hinting at a possible increase in their next communication.

In a note to clients, Sonali Punhani at Credit Suisse wrote, "We think a rate hike in November in the backdrop of weak growth, high-currency-generated inflation but weak wage pressures and uncertainty is likely to be a policy mistake."

Against the euro, the pound traded 0.3% higher to 1.1299. Last week also saw the European Central Bank (ECB) in focus as market participants weigh up the possibility of a reduction in their bond buying programme.

Wednesday also saw comments from ECB rate-setter Klaas Knot who said, "The appreciation of the euro should be considered a reflection of the relative strength and stability of the euro area economy," adding, "(This is) a clear indicator of the factors that underlie the reduced necessity of continued asset purchases ... supporting the call for a gradual but decisive rebalancing away from non-standard towards traditional instruments of monetary policy."

EUR/USD traded flat on the day ahead of the Fed statement at 1.2000, up 0.05%.

Safe haven crosses were also subject to low volume trading, with USD/JPY down 0.11% to 111.47 and USD/CHF steady at 0.9622, down 0.04%.