FOMC Meeting Sets Stage for US Dollar Strength

The foreign exchange market has been in a holding pattern ahead of tonight's FOMC meeting. The Japanese yen has given back some of its strong gains from recent weeks, causing USD/JPY to rise above the 155.00-level.

This is partly due to hawkish repricing of rate hike expectations for other major central banks outside of Japan, including the Fed and ECB. This is providing an offset to support for the yen from building expectations that the BoJ will speed up the pace of rate hikes this week.

Market participants are waiting to see if today's FOMC meeting will provide a catalyst for further US dollar strength. The updated market pricing sets a higher bar for a hawkish policy surprise, with around 100bps of Fed hikes priced in for the year ahead.