Financial markets were slightly subdued during early trading on Wednesday with investors adopting a defensive approach ahead of the looming Fed meeting. Asian shares commenced the trading day gripped by pre-FOMC jitters while uncertainty over the pace of US rate hike timings in 2017 pressured European stocks. Although Wall Street exploded higher on Tuesday, the scene could be muted today if the cautious mood from Asia and Europe encourages participants to hold fire until the pending FOMC statement.

What to expect from the Fed

The Dollar was static during trading on Wednesday as investors were on guard ahead of the FOMC meeting. With the probability of an interest rate increase this evening almost certain, much attention may be directed towards the FOMC press conference and dot plot for further clarity on rate timings in 2017.

The engine behind Dollars resurgence this quarter has been the inflated expectations of Trump’s administration boosting US economic growth via fiscal stimulus measures. Optimism over rising inflation from healthy growth swiftly sparked aggressive speculations of the Federal Reserve raising US rates repeatedly in 2017 to prevent the economy from overheating. Dollar bullish investors may be seeking for hawkish comments from the Federal Reserve revolving around the potential impacts of higher inflation and Trumps effect but could be left empty handed if the central bank adopts a cautious approach.

With the risk of Trump’s policy reality not matching to the market shaking expectations, the Fed could maintain a protective stance by keeping the dot plot unchanged for 2 rate hikes in 2017. While there is a slight possibility of the Dollar edging slightly lower today in an event of a Fed disappointment, Dollar Index bulls remain in firm control above 100.00.

U.K employment declines, Bears pounce

Sterling found itself vulnerable to losses on Wednesday following reports of UK employment falling for the first time in more than a year in the three months through October. The number of people employed declined by 6000 to 31.76 million people which continued to highlight how the ongoing Brexit anxieties have impacted the UK. Investors may direct their attention towards Carney’s speech later today and Thursday’s Bank of England meeting that is expected to conclude with no change in the monetary policy.

This quarter, rising inflation levels in the UK have sparked discussions of the BoE adopting a hawkish stance in the future but the ongoing Brexit saga could force the central bank to maintain a defensive approach. With fears on the rise over inflation skyrocketing amid a weakening pound and the persistent Brexit woes potentially denting UK growth, the Bank of England could be under renewed pressure in 2017.

From a technical standpoint, the GBPUSD displays exhaustion on the daily timeframe with a breakdown back below 1.260 encouraging a selloff towards 1.250.

WTI Crude struggles above $52

The impacts of the unexpected cooperation from OPEC and Non-OPEC members in tackling the oversupply woes could be waring off with WTI crude struggling to keep above $52. As time goes on concerns could elevate over the compliance side of this market shaking production cut deal with fears potentially rising over OPEC and non-OPEC members going against the settlement. It should be kept in mind that the current agreement is not legally obligatory and there are no fines in place for cheating which could spark speculations of members pumping incessantly in the New Year. If confidence starts to diminish over the success of the proposed 1.76 million barrels per day production cut, bears could jump back into the markets. From a technical standpoint, weakness below $52 could spark a selloff back towards $50.