Dollar Forex Market Gains Ahead of Key Meetings

• Fed Policy Update and ECB Meeting to Come
• US Inflation Key Issue to Combat
• Stock Market Quiet With Anticipation

The Euro forex market had gained momentum on Tuesday as it traded beyond 1.13 at some points. This has been drawn back though with the return of US Dollar strength to a tentative market ahead of the Fed policy update. Most are expecting this update to be hawkish and forge the path toward fastening bond purchase tapering, and an interest rate hike in the face of inflation figures that keep getting stronger. Meanwhile, Wall Street is quiet in early trading as these key decisions are awaited later in the day.

Policymakers Prepare for Huge Meetings

Those trading forex will always have an eye on meeting and comments from policymakers on both sides of the Atlantic if trading the Euro, Pound, or US Dollar. All are in hyper-focus today as the Federal Reserve is expected to indicate with their policy update whether they intend to taper bond buying. This would also pave the way for interest rate increases in the coming year. Federal Reserve Chair Jerome Powell is due to speak this afternoon at the conclusion of the policy meeting. 

This comes as the US continues to battle very hot inflation numbers, and the rise in Dollar strength and the US Dollar Index would seem to suggest that traders are already pricing in tapering and rate hikes. The ECB will meet on Thursday with an increasingly differing outlook. The region has continued to adopt a more dovish response and this is widely expected to continue. 

Inflation Continues as Critical Issue 

As mentioned, inflation numbers have continued to soar even as Omicron and Delta variants created turmoil for many in the United States and around the world. This was highlighted again on Tuesday as producer prices increased more than analysts had expected. It was the biggest annual jump in the PPI for more than a decade. 

In response, forex brokers have noted another move back toward the safe-haven Dollar as the key announcements are awaited from the Fed. They are the first of a number of policymakers to speak this week. The ECB tomorrow, along with the Bank of England, and others are all expected to address their approach in the coming days.

Stocks Muted Ahead of Policy Update

Even though it seems that many have priced in the fact tapering will speed up, and interest rates will invariably rise sooner rather than later, stocks on Wall Street have traded slowly in the early hours. There has been almost no change in any of the major indices. 

Traders are undoubtedly holding out to parse the words of Jerome Powell as well as the implications of any policy updates that happen in real-time. It is widely rumored that the Fed will double the pace of bond buying to finish the asset purchases by March next year with the possible first interest rate hike as soon as June 2022.