The US dollar moved slightly higher on Wednesday as investors eagerly awaited the Federal Reserve’s monetary policy decision for guidance on the future outlook. EUR/USD ticked down to near 1.1350 during European trading hours, facing slight pressure as the US Dollar Index rose to around 99.55. According to the CME FedWatch tool, traders have fully priced in that the Fed will leave interest rates steady in the current range of 4.25%-4.50%.
Close attention will be paid to the monetary policy statement and Fed Chair Jerome Powell’s press conference for fresh cues on how long the central bank will maintain a restrictive stance. Fed officials have indicated that monetary policy adjustments are not appropriate until there are signs of weakness in the labor market and economic growth. Steady job growth shown in Nonfarm Payrolls data has been a limiting factor for the Fed in reducing rates.
The US economy also contracted by 0.3% in the first quarter, largely due to a surge in imports frontloaded by businesses to avoid higher tariffs. President Donald Trump has repeatedly urged the Fed, particularly Jerome Powell, to lower interest rates despite easing energy and food prices. Trump even threatened to discharge Powell for not reducing borrowing costs.
In other news, US-China trade talks in Geneva have emerged as a major trigger for the US Dollar.
Euro steady ahead of Fed decision
US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer confirmed they will meet their Chinese counterparts for discussions, seen as a constructive step towards easing trade war tensions.
This has supported S&P 500 futures. The Euro traded firmly after Conservative leader Friedrich Merz was sworn in as Chancellor of Germany in his second attempt. Merz’s confirmation has reduced fears of political instability and is expected to boost defense spending measures, strengthening the German economy and favoring the Euro and German assets.
However, the Euro’s rise may be limited as the European Central Bank is set to continue easing monetary policy in June. EU Retail Sales data for March came in weaker than expected, declining 0.1% month-on-month. Year-on-year growth was 1.5%, slower than estimates.
EUR/USD holds above the 20-day Exponential Moving Average around 1.1270, maintaining a bullish outlook. The psychological level of 1.1500 is key resistance, while the September 25 high of 1.1214 is crucial support. The Fed’s monetary policy decision at 18:00 GMT will be closely watched.
A rate hike would likely strengthen the US Dollar, while a cut would weaken it as capital flows to countries with higher returns.
