Traders are Bracing for Tonight’s FOMC Decision

Greenback ticked higher on Wednesday afternoon and the Dollar index was seen to be 0.20% higher, slowly bouncing from two-month lows reached earlier in the week.

Investors are focusing on today's FOMC monetary policy decision, with the Fed seen hiking the fed fund rate to 2.25%. Just like every quarter, this decision will be accompanied by fresh inflation and economic projections and, we will see a new version of the so-called dot plot. As the rate hike has already been priced in, market participants will pay attention mainly to new projections and the dot plot.

The Central Bank appears to be ready to continue to tighten monetary policy, despite the ongoing trade war and flattening yield curve. Many maturities of the bond yield have risen to fresh cycle highs this week, with the 10-year bond yield jumping above 3.1% and the 2-year yield trading near 2.85%.

However, the greenback failed to capitalise on rising yields and traders have been selling the US Dollar recently. Moreover, stock markets are ignoring rising yields and US indices are trading at record highs.

Volatility is expected to be high after the decision, especially if the Fed confirms the rate hiking bias on the dot plot. Should the dollar index jump above 94.50, we could see a bigger relief rally targeting the 95.00 level. On the other hand, if the Fed sounds dovish today, the greenback could decline to new swing lows below 93.80.

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