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Traders are playing the wait-and-see game; in the previous few days investors have anticipated that the Fed would keep their monetary policy unchanged, but this morning trading volumes are light and so is volatility, as traders are clearly unwilling to take a firm view on the market before the announcement.
The Fed is currently pumping $85 billion each month into the US financial system to encourage lending by banks. This policy may help the economy but it is having a negative impact on the value of the US dollar. If the Fed discuss cutting back stimulus, and even if the cutback won’t come on stream for a few months, we could see traders sell the euro versus the US dollar.
European Union officials have said it is unlikely the Cypriot bailout terms will be revised after the island nation was bailed out in April, which should bring some stability to the region.