Dollar steady as traders await Fed announcement

NEW YORK (Reuters) - The dollar was little changed on Wednesday as traders awaited the conclusion of a US Federal Reserve meeting in which investors will be looking for any sign of response from central bank policymakers to the jump in US inflation.

The Fed was to conclude its policy meeting later in the day and then release new economic projections along with a policy statement.

The central bank was widely expected to acknowledge the first conversations among its policymakers about when and how quickly to pare back the massive bond-buying program launched in 2020, but most investors think the Fed will refrain from any hints of starting tapering its stimulus in the near future.

The US Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.014% lower at 90.52. The index hit a one-month high on Tuesday after data pointed to higher inflation.

“The USD remains narrowly mixed to slightly softer ahead of the Fed meeting, with the major currencies essentially holding in established ranges,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

Market participants will be listening to the news conference after the Federal Open Market Committee (FOMC) meeting for any change in tone from Fed Chair Jerome Powell about whether inflation is likely to be temporary or longer-lasting.

“We see no major changes in the policy outlook, with disappointing jobs data precluding the Fed from declaring that it is making substantial progress towards its objectives and paving the way for a tapering in asset purchases,” Osborne said.

“Tweaks to the statement and projections will have to recognize higher inflation,” Osborne said.

While there may be some “talk about talking about tapering” and some further shift in expectations of rate hikes in 2023, Osborne said he does not expect the market to be greatly surprised.

Risk-sensitive currencies were slightly higher, with the New Zealand dollar up 0.38% at $0.7146 and the Australian dollar - which is seen as a proxy for risk appetite - up 0.3% at $0.7708.

Sterling strengthened against the dollar on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2% target in May, sparking some concerns that policymakers may start signaling a shift in policy thinking if prices shoot up further.

Meanwhile, bitcoin’s recent rally appeared to run out of steam, as the world’s largest cryptocurrency fell 2.72% to $39,078.38.