Street Calls of the Week
Investing.com - The U.S. dollar edged higher Wednesday ahead of the latest Federal Reserve interest rate decision, but remained on the defensive as traders positioned for policy easing.
At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 96.442, after a 0.7% slide on Tuesday to the lowest since early July.
Dollar looks to Fed meeting
The Fed is widely expected to cut its benchmark interest rate by a quarter of a percentage point to the 4.00%-4.25% range at the end of its monetary policy meeting later in the global day.
The main focus beyond the rate decision will be on Fed Chair Jerome Powell’s comments on the outlook for U.S. monetary policy.
Along with the more qualitative statements from the FOMC and Powell, the Fed will release an updated look at its members’ rate projections for the months ahead — a closely-monitored chart known as the “dot plot.”
“The dollar has been selling off ahead of this event, but there are a few risks,” said analysts at ING, in a note. “For example, we could see short-dated US rates back up a little and the dollar get a brief bid if the Fed Dot Plots continues to show just 50bp of rate cuts this year compared to the 70bp now priced.”
Euro, sterling slip slightly
In Europe, EUR/USD traded 0.2% lower to 1.1841, with the euro slipping slightly after surging to a four-year high against the greenback in the prior session.
Eurozone CPI is due later in the session and is expected to rise 2.1% in August on an annual basis, marginally above the previous month’s 2.0%, but still largely in line with the European Central Bank’s target.
The ECB left interest rates unchanged last week, but the policymakers kept their options open about possible future interest rate cuts, flagging an uncertain outlook for trade, energy prices and foreign exchange rates.
“We’d expect good demand for EUR/USD on any corrective dip to the 1.1750/1780 area during Powell’s press conference. Seasonality now builds against the dollar – especially in November and into December – and 1.1910 looks like the final resistance level before 1.20 is hit,” ING added.
GBP/USD traded 0.1% higher to 1.3636, after U.K. inflation held steady at 3.8% on an annual basis in August, almost twice the Bank of England’s target, suggesting the U.K. central bank will keep monetary policy unchanged on Thursday.
Yen hands back some prior gains
Elsewhere, USD/JPY gained 0.1% to 146.62, after falling sharply in the prior session.
Data showed the country’s trade balance shrank less than feared in August, with exports also falling less than expected as a recent trade deal with the U.S. offered some clarity.
But exports still remained in contraction, while substantially softer-than-expected imports signaled that local demand remained weak.
The print comes just days before a BOJ meeting, where the central bank is widely expected to leave interest rates unchanged amid heightened political uncertainty in the country.
USD/CNY traded 0.1% lower to 7.1095, with the yuan encouraged by pledges of more stimulus measures from Beijing. Sustained policy support in currency markets saw the yuan perched at its strongest level since November 2024.
AUD/USD traded 0.2% lower to 0.6671, after registering strong gains in recent sessions.