The Dollar extended its gains from yesterday's session on a mix of risk aversion and anticipation of the FOMC statement, due at 2:15PM.
Overnight, growth sensitive currencies - the Canadian, Australian and New Zealand Dollars - had a hard time following the release of trade data from China. While Chinese exports were strong, import growth disappointed forecasts, and cast a bit of a shadow over the domestic demand in the Chinese economy. That hurt equities and boosted safe-haven currencies.
The Pound was pressured by a poorly received government bond auction, and weaker than expected housing data.
Traders Await FOMC Statement
Markets are in a cautious tone ahead of the FOMC meeting, with some investors looking for safety within the US Dollar. There are a few ways markets could react depending on what we hear from the Fed. If there is a full-throated commitment to ultra-low interest rates, that could help risk sentiment, as it means cheap dollars will continue to be available for the near future to buy higher-yielding assets.
However, if the Fed paints an overly bearish picture - and announces new measures for quantitative easing - that could put pressure on the Dollar.
In both of these cases, whether a risk appetite rally funded by cheap dollars, or quantitative easing, would mean the Dollar get weakened.
A third scenario is that the Fed does not introduce new stimulutive steps, which could buttress the Dollar, as such a move was priced in prior to this week. However, it's unlikley that the Fed will paint a rosy picture about the US economy.
In any case, we wait for the announcemnet and reaction, as there is a real level of uncertainty heading into this potentially pivotal policy announcement.