US Morning Forex Update

The US dollar is firmer again in narrow ranges, with EURUSD extending yesterday's decline to 1.2806 lows and USDJPY trading up to 115.28. Overnight, crude prices have come off yesterday's highs slightly, while global equity indices have rebounded from yesterday's slide.

Dollar stability likely reflects caution heading into today's Fed result. Indeed, while consensus has solidified around no change today and rate markets are pricing less than 25% odds of a hike, a move is still possible, and this marks the first meeting since the aftermath of hurricane Katrina where the likely outcome is subject some debate.

Our economics team expects no change in policy, but they note the accompanying statement will probably leave things somewhat open-ended with respect to the possibility of further tightening. This will leave currency and rate markets quite data dependent over the coming weeks, and with the Euro$ futures curve currently flat through December and inverted beyond that point, rate and currency markets would presumably be quite sensitive to upside data surprises.

Looking ahead to today's session, the FOMC result will be announced around 2:15 pm EDT.