U.S. Dollar Falls Ahead Of Fed Decision

The U.S. dollar dropped against its most major counterparts in the European session on Wednesday, as investors await monetary policy announcement by the US Federal Reserve for more clarity on the balance sheet normalization and its plans for future rate hike amid softness in inflation.

The Federal Open Market Committee will release its monetary policy statement at 2:00 pm ET, with economists expecting it to leave interest rates unchanged. The Fed had lifted the target range for its federal funds rate to 1% to 1.25% during its meeting in June.

Despite softness in inflation, the Fed is expected to keep the road for a December rate hike open.

Market participants await more information on the timing of the start of the balance sheet "normalization," which it had formalized in the June meeting.

Investors also await U.S. new home sales for June due at 10:00 am ET. Economists expect the indicator to rise to 615,000 on month, compared to a reading of 610,000 in May.

U.S. Senate Republicans narrowly agreed on Tuesday to open debate on healthcare reform, but rejected the first proposed amendment to repeal and replace Obamacare.

President Donald Trump said this was a big step and he was grateful towards Senator McCain who lent his support to the revoking of the bill.

The greenback traded mixed against its major rivals in the Asian session. While the greenback held steady against the euro, franc and the pound, it rose against the yen.

Having advanced to a 6-day high of 112.09 against the Japanese yen at 8:00 pm ET, the greenback reversed direction and retreated to 111.72. If the greenback-yen pair extends slide, 110.00 is likely seen as its next support level.

Survey data from Shoko Chukin Bank showed that Japan's small business confidence strengthened for the third straight month in July.

The small business sentiment index rose to 50.0 in July from 49.2 in the previous month. However, the score is forecast to fall to 49.1 in August.

The greenback eased to 1.3062 against the pound and 1.1651 against the euro, off its early 2-day high of 1.3002 and a 6-day high of 1.1613, respectively. Further weakness may take the greenback to support levels of 1.32 around against the pound and 1.19 versus the euro.

The greenback edged down to 1.2502 versus the loonie, 0.7435 versus the kiwi and 0.7925 versus the aussie, from its early highs of 1.2519 and 0.7409, and a 5-day high of 0.7878, respectively. Continuation of the greenback's downtrend may see it challenging support around 1.24 against the loonie, 0.76 against the kiwi and 0.805 against the aussie.

On the flip side, the greenback strengthened to a 6-day high of 0.9595 against the Swiss franc, from a low of 0.9515 hit at 5:00 pm ET. Next likely resistance for the greenback-franc pair is seen around the 0.97 region.

Survey data from the UBS investment bank showed that the Swiss consumption indicator remained broadly stable in June signaling subdued growth in private spending in recent months.

The consumption indicator rose marginally to 1.38 in June from revised 1.32 in May.