Investors Look To Fed For More Hawkish Statement

The euro traded at $1.2513 at 7:00 GMT on Tuesday morning as the U.S. Federal Reserve began its two-day policy meeting and the dollar gained strength. The common currency remained above $1.25, but lost some if its momentum against the greenback as investors saw the Fed as being less dovish this month than it has in the past.

This year, the U.S. Federal Reserve wound down its massive quantitative easing program with few consequences, but now investors are speculating about when the bank will raise interest rates and truly allow the U.S. economy to stand on its own. Following previous months’ meetings, the bank has been cautious about its plans for a rate hike, saying that it will keep rates low for a “considerable time.” Fed Chief Janet Yellen has expressed concern about the labor market’s recovery as well as the deteriorating global economic climate, saying that interest rates will remain low until the U.S. economy is on solid ground.

Related Link: Crude Oil Prices Continue Free Fall

However, with U.S. labor market posting strong figures over the past few months, many are expecting Fed to take on a more hawkish tone at the conclusion of the meeting on Wednesday. Investors are expecting to see the bank eliminate the phrase “considerable time” from its policy statement, signaling that a rate hike could come sooner rather than later.

Meanwhile, the European Central Bank has been moving in the opposite direction as the region tries to keep its economy from stalling. In addition to the region’s already struggling financials, the drop in oil prices has complicated the bank’s decision regarding easing. On Monday, Reuters reported that ECB Governing Council member Ignazio Visco warned that sinking oil prices could drag inflation even lower in the coming months. With that in mind, the ECB may be pushed to ease further in early 2015.