The US dollar traded mostly steady against major currencies on Wednesday as investors awaited the first monetary policy decision from the Federal Reserve under its new Chair, Kevin Warsh. Markets are bracing for potential volatility as traders assess his policy approach and communication style.

The euro held steady at $1.1605, while the British pound edged lower to $1.3420 and slipped to 86.5 pence against the euro after UK inflation data came in below expectations, potentially giving the Bank of England more room to delay any interest rate increases this year.

Despite those developments, the Federal Reserve meeting remains the dominant market event, prompting investors to avoid taking large positions ahead of the decision.

The Fed is widely expected to leave interest rates unchanged at its first meeting under Warsh. However, markets will closely monitor the policy statement, economic projections, and press conference for any signs that the central bank may be stepping back from a more accommodative stance amid growing inflation concerns.

Jane Foley, Head of FX Strategy at Rabobank, said:

"We have seen several central bank meetings this month, but this one overshadows them all."

She added:

"There is considerable uncertainty about the message Warsh may deliver. Nobody expects a rate change, but the question is whether he will downplay the importance of the dot plot, introduce a new policy framework, or guide markets toward a more dovish outlook."

The so-called "dot plot" reflects policymakers expectations for the future path of interest rates.

President Donald Trump appointed Warsh to lead the Federal Reserve after repeatedly criticizing former Fed Chair Jerome Powell for moving too slowly in cutting interest rates.

At present, money markets are pricing in roughly an 80% probability that the Federal Reserve will raise interest rates at some point this year.

Before the United States and Iran reached a temporary agreement to end the conflict in the Middle East, many economists expected the Fed to signal a willingness to tighten policy further in order to prevent higher energy prices from feeding through into broader inflation.

However, with oil prices now trading below $80 per barrel, the central bank may deliver a different message at this meeting.

Attention also turns to the Bank of England and Bank of Japan

The Bank of England is scheduled to announce its policy decision on Thursday and is also expected to leave interest rates unchanged, with investors focusing more on policymakers guidance than the decision itself.

That guidance could be influenced by Wednesdays inflation data, which showed UK inflation holding steady at 2.8% in May, unchanged from Aprils 13-month low.

Foley said continued easing in inflation pressures could allow the Bank of England to avoid raising interest rates this year if peak inflation proves lower than previously expected.

Markets are currently pricing in just one UK rate hike before the end of the year.

Meanwhile, the Japanese yen traded at 160.25 per dollar, posting a modest gain but remaining close to levels that have historically triggered concerns about official intervention to support the currency.

The Bank of Japan raised interest rates on Tuesday to their highest level in 31 years, marking another major step in its policy normalization process. The central bank also signaled that further tightening remains possible if inflation pressures linked to higher energy prices persist.

However, policymakers stopped short of providing any clear indication regarding the timing of the next rate increase.

In Europe, the Swedish krona weakened against both the dollar and the euro after the Riksbank left interest rates unchanged.

The central bank said the conflict in the Middle East has increased inflation risks and raised the possibility of future rate hikes, while also noting that core inflation remains subdued and economic activity continues to be weaker than normal.

The euro rose 0.15% to 10.88 Swedish kronor, while the dollar gained 0.19% to 9.383 kronor.