Overall, given the net risks, the most likely outcome is for a further 0.25% cut today, although a 0.50% cut or unchanged rates should not be ruled out.

There should be a measured dollar reaction to a 0.25% cut while the currency will again be subjected to heavy selling pressure if there is a 0.50% rate cut. Unchanged rates would tend to strengthen the dollar sharply initially, although there could be a quick reversal on expectations that a cut has just been delayed. There would also be fears that the Fed is behind the curve unless the near-term economic data is stronger than expected.

The statement will also need to watched very closely as it will be a key guide to the Fed’s thinking on underlying trends. The Fed will need to retain as much flexibility as possible and is likely to say that future decisions will be dependent on forthcoming data.

A greater emphasis on inflation risks and confidence in the underlying economy would, however, represent a much more positive dollar backdrop than if the Fed concentrates on the downside economic risks.

The Wall Street and credit-market reactions will also be very important for the overall dollar direction, especially against Asian currencies.