Forex Today: Upbeat markets and a weaker Dollar ahead of Fed

During the Asian session, Australia will release consumer inflation data, crucial ahead of next week's RBA meeting. Later in the day, the Federal Reserve will announce its decision, and Powell will deliver a press conference.

Here is what you need to know on Wednesday, July 26:

Another positive session for Wall Street, with the Dow Jones recording a 0.08% gain and the Nasdaq rising by 0.61%. The positive tone prevailed ahead of key events for markets, supported by hopes of more stimulus from China and for the near end of the tightening cycle from central banks. Stock investors will continue to digest earnings results, with Meta and Coca-Cola reporting on Wednesday.

The International Monetary Fund upgraded its global growth forecast but warned that the economy is “not out of the woods”. According to the institution, the risk of a crash landing has receded. They see a 3% growth for this year.

The US Dollar Index ended a five-day positive streak on Tuesday, the day before the FOMC decision, weakened by risk appetite and a modest decline in US bond yields. The DXY dropped from 101.60, the highest since July 12, falling below 101.30.

Market participants await the decision from the Federal Reserve. A 25 basis points rate hike is expected. If the Fed delivers as expected, the focus will change to the tone of the statement and Powell's guidance. New Home Sales data is due before the Fed.

Data from the US released on Tuesday showed the Conference Board's Consumer Confidence Index rose in July to 117.0 from 110.1 (revised from 109.7), surpassing expectations. The one-year inflation expected edged lower to 5.7%. The Housing Price Index rose 0.7% in May.

EUR/USD edged lower again and bottomed at 1.1018, the lowest in almost two weeks, before bouncing toward 1.1050. The German IFO survey reflected the deterioration in the growth outlook. The European Central Bank is expected to raise its key interest rates by 25 basis points on Thursday.

• German IFO Business Climate Index drops to 87.3 in July vs. 88.0 expected
• IFO’s Economist: German GDP likely to shrink in the 3rd quarter

GBP/USD rose after falling for seven consecutive days, rising to the 1.2900 area. EUR/GBP tumbled from 0.8625 to 0.8560, falling below the 20-day SMA and posting the lowest close in two weeks.

USD/JPY dropped, falling below 141.00, ahead of the Fed meeting amid lower Treasury yields. The Bank of Japan is expected to keep its monetary policy unchanged on Friday.

AUD/USD rose toward 0.6800, propelled by signs of more stimulus from China and risk appetite, extending the move to the upside after holding above the 20-day Simple Moving Average (SMA). Australia will release inflation data for the second quarter and June. The Monthly Consumer Price Index is expected to show a decline in the annual rate from 5.6% to 5.4%. This data is critical ahead of next week's Reserve Bank of Australia (RBA) meeting.

Australia CPI Preview: Forecasts from seven major banks, inflation data to be a key variable for the RBA

NZD/USD gained ground for the second day in a row on the back of the weaker US Dollar, retaking the 0.6200 mark. 

USD/CAD advanced marginally, ending far from the daily highs and below 1.3200. The pair remains moving sideways between 1.3220 (20-day SMA) and 1.3150.

Gold rose $10, ending above $1,960, helped by the slide of the US Dollar. Silver rose after three days and climbed to $24.65. The outcome of the Fed meeting is likely to trigger sharp volatility in metals on Wednesday. Crude oil prices rose more than 1%, with WTI reaching fresh three-month highs above $79.00.