The dollar declined in early European trading on Wednesday ahead of the U.S. Federal Reserve’s latest interest rate decision; and the market is cautious ahead of the event, which led to narrow trading ranges.

At 03:00 Eastern Time (07:00 GMT), the dollar index, which tracks its exchange rate against a basket of 6 other currencies, fell to 103.477, remaining below the 103.93 level seen at the end of last week and the highest level since December 2002.

The Fed will announce its latest monetary policy decision a little later today, and is expected to decisively raise the interest rate by 50 basis points to combat inflation, which has reached a 40-year high.

Also of interest is Fed chief Jerome Powell’s press conference, where traders will be looking for clues as to how far and how quickly the central bank is willing to raise rates, especially since the next Fed meeting is not until June.

Swap traders fully expect a 50 basis point rate hike at each of the Fed’s next 3 meetings – June, July and September – which is the tightest trajectory in 3 decades.

“Assuming the Fed does not begin to question the pace of its tightening cycle – which seems unlikely – a reaffirmation of ‘urgent’ monetary policy normalization should support the short end of the US yield curve and the dollar,” ING analysts said in a note.

Wednesday’s U.S. economic data includes the release of monthly private sector employment data ahead of Friday’s official jobs report for April, which should show how the labor market is holding up. There are 11.5 million job openings in the US, but unemployment is at its lowest level in decades.

GBP/USD fell 0.2% to 1.2476,; with the Bank of England due to make its monetary policy decision a day after its US counterpart.

The UK central bank is expected to raise interest rates again on Thursday as it has already raised rates three times since the end of 2021, but Bank of England Governor Andrew Bailey noted the difficult road ahead for bankers to avoid a possible recession.

“Our base case scenario is for a 25 basis point rate hike, which is supported by 8 out of 9 MPC members,” ING said in a note. – “We think this would trigger a more dovish revaluation of the GBP curve and the pound could weaken moderately after the rate announcement. Such weakness should become more pronounced against the dollar, which may get additional support from the Open Market Committee meeting.”

EUR/USD rose 0.1 percent to 1.0525, remaining slightly above last week’s low of 1.0470, the weakest level since January 2017.

The European Commission proposed on Wednesday to exclude Russia’s largest bank Sberbank and 2 other banks from the SWIFT international transaction and messaging system, strengthening sanctions against Moscow.

AUD/USD rose 0.3% to 0.7114, holding its ground after the Reserve Bank of Australia raised its interest rate earlier in the week to fight inflation. USD/JPY rose to 130.12, while USD/CNY was little changed and traded at 6.6083 as markets in Japan and China are off today due to a holiday.