USD grinds higher ahead of FOMC – Scotiabank

The US Dollar (USD) is advancing again ahead of the Fed policy decision this afternoon, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD firms ahead of FOMC

"Gains are relatively limited versus the core majors and the JPY and MXN are just about managing to resist the rise. Finance Minister Kato spoke with US Treasury Secretary Bessent earlier and said they will continue to discuss FX closely. The AUD is underperforming after Q4 CPI data came in a little lower than forecast, lifting expectations that the RBA will—finally —join the global central bank easing trend in February. Limited movement overnight may reflect thinner trading in Asia in particular due to the start of the Lunar New Year celebrations."

"The FOMC is expected to leave policy on hold today. Policymakers have signaled that the pace of easing may slow amid resilient growth trends and the lack of additional progress on inflation since the middle of last year. Uncertainty about the impact of President Trump’s policy initiatives will add to the desire to hold off on additional easing for now. Policymakers may be concerned that tariffs could reignite inflation pressures a little more easily amid still stubborn price pressures."

"Fed Chair Powell will likely try and steer a relatively neutral–sounding course on the near-term outlook for policy at least but a steady Fed contrasts with the outlook for lower rates in many other jurisdictions and provides the motivation for a somewhat firmer USD. Meanwhile, the White House reiterated February 1 tariff threats for Canada and Mexico at yesterday’s press briefing. Given that one of President Trump’s first moves was to order a thorough review of US trade and economic policies which is due April 1, some time shortly after the latter date may be a more realistic point for tariff action to emerge."