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What the FOMC Meeting Could Mean for the Dollar

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When Federal Reserve officials offer a peek into their interest rate plans, it could mean tough sledding for the dollar.

Wondering about the currency effect of the Federal Reserve's new openness on interest-rate plans, on display for the first time today? Steven Englander, global head of G10 FX strategy at Citigroup, is of two minds.

"In the long and medium term this is all second order," he wrote in a note to clients. But in the short term, it's more complicated, he says. Investors will want to know what the meaning of "extended" is when Fed officials talk about keeping rates low for an extended period. If they conclude that means 2015 or 2016, it could hurt sentiment.

Such a shift would be more important than you might think, Englander says. "Our positioning indicators show the short EUR position mainly against USD rather than on the crosses," he says, and the only long positions they see are in the dollar. That means the greenback is vulnerable. Also, Englander says, "investors have discussed the EUR to death, but have been giving the USD an easy ride." If they start to worry, "the USD could be in for a rough ride in the immediate aftermath of FOMC, even if the long-term implications are limited."

The fun should start this afternoon with the release of the FOMC statement.

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