Title: U.S. Dollar Weakens Ahead of Fed Decision: Outlook for EUR/USD, GBP/USD, USD/CAD, and USD/JPY
Source: Original article by Vladimir Zernov, FX Empire (fxempire.com)
As market participants brace for the U.S. Federal Reserve’s impending interest rate decision, the U.S. dollar has pulled back against major currencies. The muted momentum has been largely attributed to anticipation surrounding the Federal Reserve’s policy announcements, scheduled for later this week. While inflationary pressures continue to dominate fiscal commentary, expectations of when the Fed might begin cutting rates are becoming a central talking point.
The U.S. Dollar Index (DXY), which measures the greenback’s performance against a basket of major currencies, has slipped as investors wait for signals on future monetary tightening or easing. As of this writing, the DXY hovered around the 104.90 level.
This article, based on Vladimir Zernov’s analysis on FX Empire and supplemented by additional market insights and economic data, dives into how the U.S. dollar is performing against the euro, British pound, Canadian dollar, and Japanese yen, offering forecasts and technical perspectives for each currency pair.
U.S. Dollar Outlook Ahead of Fed Decision
Federal Reserve Chair Jerome Powell and the Federal Open Market Committee (FOMC) will announce the Fed’s benchmark interest rate decision during today’s policy meeting. Although the Fed is widely expected to keep rates unchanged at 5.25% to 5.5%, traders are laser-focused on the tone of Powell’s statements and the dot plot for future rate changes.
Currently, Fed Funds Futures are pricing in just one rate cut for this year, projected to happen around November or December. Lingering inflation concerns, particularly in services and housing, have prompted the central bank to maintain a hawkish posture even amid signs of economic softening.
Key drivers affecting the dollar include:
– May Consumer Price Index (CPI) data, released just ahead of the FOMC meeting, which showed a 0.0% monthly increase and a 3.3% annual increase — in line with expectations
– Core CPI showed a 0.2% monthly rise and a 3.4% annual increase, also meeting expectations
– Real average hourly earnings increased by 0.5% year-on-year, slightly stronger than past months
– Labor market data has begun to cool, with job openings and ADP private sector payrolls both signaling slower hiring
These mixed signals leave the Fed with little clarity, thereby intensifying the market’s sensitivity to Powell’s remarks.
EUR/USD: Attempting a Breakout Above Key Resistance
EUR/USD has gained ground as the U.S. dollar weakens ahead of the Fed meeting. The pair most recently tested the resistance near the 1.0800 level. If bullish momentum persists, consolidation above this key barrier could pave the way for a move toward higher levels.
Current technical setup:
– Resistance at 1.0800 remains a key psychological and technical barrier
– If EUR/USD manages to stabilize above 1.0800, the next significant resistance region is at 1.0835
– Support lies at 1.0760, with an additional downside guard at 1.0725
The European Central Bank (ECB) recently delivered a 25-basis point rate cut, reducing its key deposit rate to 3.75% in an effort to support lagging growth in the euro area. This move, however, was widely anticipated and did not provoke extensive price movement in the euro.
Looking ahead, the euro’s performance will depend heavily on:
– Fed’s policy signals — more dovish Fed signals could allow EUR/USD to trade higher
– Incoming European economic data, particularly inflation and growth figures
– Geopolitical and trade uncertainties involving key EU economies, especially Germany and France
GBP/USD: Struggling to Gain Momentum but Holding Ground
The British pound is holding steady against
Read more on USD/CAD trading.