U.S. dollar trading lower on expected dovishness from the Fed

The U.S. dollar fell against the Euro and most major currencies on Wednesday, on bets the Federal Reserve will say interest rates will remain at record low for a longer period than originally seen.

The Euro rose 0.15% against the U.S. dollar to $1.27507. The Dollar Index, which tracks the value of the U.S. dollar against six major currencies, fell 0.15% to 85.24.

Market transactions before the Federal Open Market Committee decision suggest that Fed would include a more cautious language in its message.

The Fed’s words could also show some recognition of the risks generated from the recent hike in volatility across global financial markets, and that its future decisions could focus on how a slowdown in Europe, China and other economies could influence growth in the U.S.

The Fed could also fret about a stronger U.S. dollar, echoing some of the Committee’s members in the last FOMC meeting.

A longer time of lower interest rates in the U.S. would make the dollar a less appealing investment, as dollar-denominated assets would see fewer gains on returns than when there are higher interest rates.

The Federal Reserve is also expected to end its large-scale bond-buying program. A decision like this has historically rattled markets, but for this time, markets seem to have that priced in.

Also, the Federal Reserve is expected to keep its words regarding the slack in the labor market, and that there still remains more potential for improvement.

10-year Treasury yields in the U.S. edged higher a bit before the decision, but with low volumes as investors are treading softly.

In summary, a change of course could be coming, but the Fed could be a little conservative about the change in language