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• S&P 500 falls alongside major US equity indexes on Fed outlook.
• Federal Reserve holds rates steady at 5.5%, but sees rates higher longer.
• US equities declined across the board on Wednesday after the Federal Reserve (Fed) signaled that rates might be staying higher for longer than previously expected.

Fed Chair Jerome Powell stood pat on interest rates, leaving the benchmark rate at 5.5% as markets broadly expected, but the Federal Open Market Committee (FOMC) raised their rate projections looking forward, seeing 5.1% for 2024's end-of-year rate, versus the previous 4.6%.

Fed officials also signaled they might be raising rates one more time this year, but Fed head Powell noted that this could very well be the peak of the rate hike cycle.

Read more:

Jerome Powell speaks on monetary policy after deciding to hold interest rate steady

Fed dot plot points to one more 25 bps hike in 2023 and 50 bps cut in 2024

Prior to Wednesday's Fed showing, markets were anticipating a full percentage point cut from the Fed by the end of 2024, rather than the half-point currently on the books.

The Standard and Poor's  (S&P) 500 equity index slid 40 forty points through Wednesday, ending the day down 0.94% into $4,402.20.

The NASDAQ Composite index tumbled 1.53% to end the day at $13,469.13, while the Dow Jones Industrial Average (DJIA) managed to hold on through Wednesday, ending the day down a meager 0.22%. The DJIA closed out the Wednesday market session near $34,440.00.

S&P 500 technical outlook

The S&P 500 spent much of the early part of Wednesday in the green, trading into $4,460.00 from the day's open near $4,440.00. However, the hawkish Fed outlook sent equities tumbling, sending the index down to close out the day at $4,400.

Hourly candles see the S&P 500 set to slide further after losing the week's bottom from $4,415.00, and a lower highs pattern is firming up on the charts.

On the daily candlesticks, the S&P 500 is set to take a run into the 100-day Simple Moving Average (SMA) near $4,382.00, while the 200-day SMA rests far below current price action near $4,200.00.

S&P 500 daily chart

S&P 500 technical levels

• EUR/JPY trades down 0.06% at 157.94, failing to sustain gains above the 158.00 level after the Fed’s hawkish announcement.
• First support levels in sight: Senkou Span A at 157.89 and Tenkan-Sen at 157.61, with further downside at Ichimoku Cloud top at 156.50.
• Upside potential exists if the pair breaks 158.00, targeting YTD high at 159.76.

The EUR/JPY hovers below the 158.00 area after clinging to slim gains on Wednesday. The Federal Reserve’s decision to hold rates while upward revising its estimates on interest rates for the next year is a headwind for the Euro (EUR) as Thursday’s Asian session begins. At the time of writing, the cross exchanges hands at 157.94, down 0.06%.

The daily chart portrays the pair is trading sideways, though it printed a new weekly high of 158.45, but failure to cling to 158.00 opened the door for a pullback. In that event, the EUR/JPY first support would be the Senkou Span A at 157.89, followed by the Tenkan-Sen at 157.61. Further downside is expected at the top of the Ichimoku Cloud (Kumo) at 156.50.

Conversely, if EUR/JPY reconquers the 158.00 mark, the next resistance would be the September 20 high at 158.45. A breach of the latter will expose the 159.00 mark, followed by the year-to-date (YTD) high at 159.76.

EUR/JPY Price Action – Daily chart

EUR/JPY Key Technical Levels

At a news conference following his attendance at the General Assembly of the United Nations, Japanese Prime Minister Fumio Kishida said on Thursday that he'll be having folks put together the pillars of an economic package from early next week.

Key quotes

Market reaction

USD/JPY is trading near 148.31 on the above comments, losing 0.02% on the day.

• NZD/USD edges higher to 0.5940 after an upbeat growth number. 
• The Federal Reserve (Fed) maintained interest rates unchanged at 5.25-5.50% range at its September meeting. 
• New Zealand economy expanded 0.9% in Q2 vs. 0% in Q1. 

The NZD/USD pair recovers its recent losses around 0.5937 during the early Asian session on Thursday. The US Dollar Index (DXY) rose to 105.44 after retreating to 104.60 after the FOMC September meeting. Meanwhile, US Treasury yields surged, with the 10-year yield hitting 4.40%, the highest since 2007, and the 2-year yield reaching 5.17%, which was the highest since 2006. NZD/USD currently trades near 0.5938, up 0.17% on the day. 

The Federal Reserve (Fed) maintained interest rates unchanged at the 5.25-5.50% range on Wednesday. Officials are convinced that they could lower inflation without damaging the economy or leading to massive job losses. According to the Fed's updated quarterly projections, the benchmark overnight interest rate may be raised one more time this year to a peak 5.50% to 5.75% range, and rates may remain significantly tighter through 2024 than previously anticipated.

The latest data released by Statistics New Zealand revealed on Thursday that the New Zealand economy expanded 0.9% during the second quarter, following 0% in the previous reading. The market consensus was for a 0.5% expansion. On an annual basis, the second-quarter GDP expanded by 1.8%, compared with the 2.2% growth in Q1 while beating estimates of a 1.2% increase. In response to the better-than-expected data. the Kiwi reverses its Wednesday's losses and acts as a tailwind the for NZD/USD pair. 

Looking ahead, the US weekly Jobless Claims, the Philly Fed, and Existing Home Sales will be released on Thursday. Traders will digest the Fed meeting impact and take cues from these figures, which could give a clear direction to the NZD/USD pair. 

According to the latest data released by Statistics New Zealand on Thursday, The New Zealand economy expanded 0.9% during the second quarter, following 0% in the previous reading. The market consensus was for a 0.5% expansion.

The annual second-quarter GDP expanded by 1.8%, compared with the 2.2% growth in Q1 while beating estimates of a 1.2% increase.

Market reaction

The NZD/USD pair edges higher following the New Zealand GDP data release. At the press time, the spot is up 0.26% on the day to trade at 0.5945.

About New Zealand GDP

The Gross Domestic Product released by the Statistics New Zealand is a measure of the total value of all goods and services produced by New Zealand. The GDP is considered as a broad measure of New Zealand economic activity and health. Generally speaking, a high reading is seen as positive (or bullish) for the NZD, while a falling trend is seen as negative (or bearish) for the NZD.

• AUD/USD takes a step lower and erases Wednesday's gains to trade into the sub-0.6450 region heading into Thursday.
• The Aussie spent most of the day walking steadily higher heading into the Fed rate call.
• Federal Reserve holds steady on rates, but raises their outlook going forward.

The AUD/USD took a header after the Federal Reserve (Fed) had their rate call which saw the US central bank hold their benchmark interest rate steady at 5.5%.

The Greenback (USD) climbed across the board and the Aussie-Dollar pairing spilled across the charts to end Wednesday below where it started. The Fed raised their interest outlook, with the Federal Open Market Committee (FOMC) seeing interest rates at 5.1% at the end of 2024, half a percent higher than their previous forecast of 4.6%.

Read more:

Forex Today: US Dollar strengthens after Fed’s hawkish pause

Fed dot plot points to one more 25 bps hike in 2023 and 50 bps cut in 2024

Thursday will see US Initial Jobless Claims for the week into September 15th, which is forecast to tick up from 220K to 225K, and Aussie Purchasing Manager Index (PMI) figures.

Australian PMIs are scheduled for 23:00 GMT on Thursday, when markets will be heading into the Friday trading session. The Australian composite PMI last printed at a declining 48.0.

Friday will see the American side of PMI figures, which are expected to slightly improve, from 47.9 to an even 48.0 for manufacturing, and from 50.5 to 50.6 for the services component.

AUD/USD technical outlook

The AUD tumbled from the day's high near 0.6510 to close out Wednesday trading just beneath the 0.6450 handle.

Intraday prices are still seeing support from the 200-hour Simple Moving Average, currently rising into 0.6440, and the ball will be in Aussie bulls' courts to try and stage a relief rally.

On the daily candlesticks, the AUD/USD got knocked back from the 34-day Exponential Moving Average in Wednesday trading, and the pair currently sits noticeably bearish, well back from the 100-day SMA currently floating into the 0.6600 level.

The Relative Strength Index (RSI) and the Moving Average Convergence-Divergence (MACD) indicators are drifting into the midrange, with the pair trading into familiar territory on the weekly candles.

AUD/USD daily chart

AUD/USD technical levels

• Silver price was unable to break the 200-day moving average of $23.46 after the Fed’s hawkish stance.
• Fed’s upward revision of interest rates and strong economic projections lift US Treasury yields, adding pressure on precious metals.
• US real yields break the 2% barrier, signaling potential headwinds for silver; investors should closely monitor yield movements.

Silver price clings to its earlier gains, though it failed to sustain a break above the 200-day moving average (DMA) of $23.46 after the US Federal Reserve delivered a hawkish pause. Consequently, the Greenback (USD) advanced, underpinned by the US Treasury bond yields advancement to multi-year highs. The XAG/USD is trading at $23.24, a gain of 0.24%.

XAG/USD fails to break 200-DMA, trades at $23.24 as Fed’s hawkish pause boosts the Greenback

XAG/USD extended its losses after the Fed held rates unchanged at the 5.25%-5.50% range. Officials stressed that “Inflation remains elevated” while acknowledging the economy is expanding “at a solid pace” while the labor market remains tight. Nevertheless, market participants reacted to the Summary of Economic Projections  (SEP), which showed upward revisions to the Federal Funds Rate (FFR).

The SEP showed Fed policymakers eyeing rates to finish at 5.6% in 2023 and 5.1% in 2024, above June’s 4.6% projection. In regards to additional economic data, the Gross Domestic Product (GDP)) was also upward resided from 1% to 2.1%. The unemployment rate is expected to dip to 3.8% from 4.1%, PCE stood at 3.3%, up from 3.2%, while core PCE is foreseen to fall from 3.9% to 3.7%.

In his press conference, the Fed Chair Jerome Powell said the US central bank is “prepared to raise rates further, if appropriate.” He added the Fed’s intention to keep policy at a restrictive level until they’re confident that inflation is moving towards the Fed’s2% objective.

Consequently, US treasury bold yields climbed, with US 2s and 5s reaching 5.152% and 4.547% each. That underpinned the Greenback, as shown in the US Dollar Index (DXY), a gauge of the buck’s performance against its peers, closing at 10.33 for 0.12% gains.

In the meantime, US real yields pushed higher, as seen by the US 10-year Treasury Inflation-Protected Securities (TIPS) bond yield, which broke the 2% barrier and finished at 2.046%, a headwind for precious metals.

Hence, if US real yields continue to climb, investors could expect further downside in the segment. Therefore, XAG/USD traders must track them to gauge the future direction of Silver prices.

XAG/USD Price Analysis: Technical outlook

After failing to achieve a daily close above the 200-DMA successfully, the XAG/USD is exposed to sellers, as drafted by the daily chart. On Wednesday’s session, the white metal printed a daily high at $23.58, shy of the 50-DMA at $23.70, opening the door for a pullback, which occurred using the Fed’s decision as a catalyst. Therefore, the XAG/USD most likely scenario would push prices below the $23.00 mark, followed by the September 14 daily low of $22.30. On the other hand, upside risks remain at the September 20 daily high of $23.58.

• WTI testing into $89.00 as markets take a step back after the Fed gave their latest rate call.
• Fed kept rates at 5.5%, but updated their rate outlook.
• US Oil easing back after supply constraint worries sent crude roaring.

West Texas Intermediary (WTI) has rallied recently, closing in the green for ten of the past twelve consecutive trading weeks and notching in over a 30% gain on the period.

Global crude oil supplies are facing down a continuous drawdown in reserve supplies after Saudi Arabia and Russia both announced that they would be extending their ongoing crude production cuts through the end of the year.

Crude soars on supply constraint fears, but hawkish Fed knocks action lower

Market analysts expect global crude supply chains to be facing a 2 million bpd deficit for the time being, until other crude production and shale pumping projects can get started in the US.

The Federal Reserve (Fed) held their benchmark interest rate at 5.5%, in-line with broader market estimates. However, the US central bank has updated their rate expectancy schedule looking forward, driving asset prices down and sending the US Dollar broadly higher.

The Fed now sees the interest rate for the year ending 2024 at 5.1%, half a percentage point higher than the previous 4.6%.

WTI technical outlook

WTI US crude oil is down %2 on the day's high, trading into $89.00 per barrel. Crude is slightly off its near-term high near $92.25, and further declines will be hampered by the 200-hour Simple Moving Average (SMA) currently providing support for intraday prices.

On the daily candlesticks, WTI is looking incredibly overbought with the Relative Strength Index (RSI) and Moving Average Convergence-Divergence indicators all flashing firmly in the top end, warning that a correction could be on the cards.

WTI's recent breakout from a rising triangle will see support just above $84.00, with the 34-day Exponential Moving Average (EMA) climbing the charts to provide dynamic support as well.

WTI daily chart

WTI technical levels

• USD/JPY closed Wednesday at 148.34, up by 0.33%.
• Fed kept rates steady but signalled high rates will be kept for longer.
• Monetary Policy divergences to weaken the JPY.

On Wednesday, the USD/JPY closed with gains above 148.00 as the USD got a boost amid the hawkish Federal Reserve (Fed) stance, which fueled US yields to multi-year highs.

As expected, the US Federal Reserve kept interest rates unchanged at 5.25%-5.50%. Still, it surprised the market with its projections to keep rates at 5.1% for 2024 (revised from 4.6%), and virtually sent a message that it will keep rates at restrictive levels for a longer time. In addition, the projections for rates in 2023, via the so-called dot plots, were kept at 5.6% and signalled one last like in the remainder of the year, and markets are placing bets for it to be in December. 

As a reaction, the short-term US yields rose to multi-year highs, with the 2,5 and 10-year rates advancing to 5.17%, 4.57% and 4.40%, respectively, making the US Dollar gain interest.

On the JPY’s side, eyes are on Friday's Bank of Japan (BoJ) meeting decision.  The bank has already stated that changes to monetary policy won't be considered until local wage and inflation indicators match their projections. However, markets will look for any clues to start discounting a potential lift-off in the near term. In the meantime, as the Fed’s tightening cycle isn’t over yet, divergences between the two banks will continue weakening the Yen unless the BoJ leaves its ultra-dovish stance.

USD/JPY Levels to watch 

Based on the daily chart analysis, a bullish outlook is noted for USD/JPY in the near term. The Relative Strength Index (RSI) stands above its midline in positive territory, further validated by the decreasing red bars on the Moving Average Convergence Divergence (MACD). In addition, the pair is above the 20,100,200-day Simple Moving Average (SMA), indicating that the bulls are in command of the broader picture.

 Support levels: 147.80, 147.10 (20-day SMA), 146.00.

 Resistance levels: 148.50, 149.00, 150.00.

USD/JPY Daily Chart

• The EUR/USD has rapidly reversed Wednesday's direction after getting knocked lower by Fed rate call.
• Fed keeps rates at 5.5%, but sees at least one more rate hike by the end of 2023.
• Markets have piled into the USD after the Fed updated its forward-looking rate expectations.

The EUR/USD is sharply off the day's highs of 1.0735, trading into the low end and chalking in a new low for Wednesday near 1.0650.

The Federal Reserve (Fed) updated their Summary of Projections (SEP), which shows Fed officials expecting the interest rate to hit 5.1% by the end of 2024 (previously 4.6%). Despite the Fed holding steady on rates at 5.5% for the time being, the uptick in the rate of interest rate cuts has sent the US Dollar broadly up across the board.

Read more:

Fed delivers a hawkish pause, promises higher for longer rates

Jerome Powell speaks on monetary policy after deciding to hold interest rate steady

Fed dot plot points to one more 25 bps hike in 2023 and 50 bps cut in 2024

Up next on the economic calendar, US Initial Jobless Claims are slated for Thursday at 12:30 GMT, and the figure is expected to print slightly higher at 225K versus the previous 220K.

Forex Today: US Dollar strengthens after Fed’s hawkish pause

Friday sees Purchasing Manager Index (PMI) figures for both the European Union (EU) and the US. EU Composite PMI is forecast to dip slightly to 46.5 from 46.7, while the US side is anticipating a minor improvement. The US Manufacturing PMI is expected to tick up from 47.9 to an even 48.0, while the Services component is anticipated at 50.6 versus the previous 50.5.

EUR/USD technical outlook

Wednesday's Fed-sponsored decline in the Euro-Dollar pairing sees the EUR/USD giving up most of the gains for the week, trading into the 1.0660 level after getting knocked back.

Price declines in the pair are starting to accelerate from a descending trendline on the daily candlesticks, marked in from July's swing high near 1.250.

The 200-day Simple Moving Average (SMA) also rests above current price action, turning flat near 1.0830. 

Continued selling pressure from here will see the EUR/USD set to close in the red for a tenth straight week and set to challenge the year's lows currently marked in near 1.0500.

EUR/USD daily chart

EUR/USD technical levels

During the Asian session, New Zealand will release Q2 GDP data. After the Federal Reserve, attention remains on central banks on Thursday, with the decisions from the Bank of England and the Swiss National Bank in the spotlight.

Here is what you need to know on Thursday, September 21:

The Federal Reserve kept interest rates unchanged at 5.25-5.50% in a unanimous decision. The statement showed minimal changes compared to the July meeting. In their projections, most FOMC members indicated that another rate hike might be appropriate before the year's end. Fed Chair Powell clarified during the press conference that the "dot plot" is not a plan.

The impact of the Fed meeting will continue on Thursday when more US data is due with the weekly Jobless Claims, the Philly Fed, and Existing Home Sales.

The possibility of a US government shutdown is increasing. In order to avoid a shutdown in October, legislation needs to be passed before the end of the week.

US Treasury yields jumped, with the 10-year rising to 4.40%, the highest since 2007, and the 2-year reaching 5.17%, a level not seen since 2006. Higher yields offered a boost to the Greenback. In Wall Street, stocks failed to hold onto gains and finished lower. The Dow Jones lost 0.22%, and the Nasdaq declined by 1.53%.

The US Dollar Index jumped from 104.60 to test recent highs around 105.40 after the FOMC September meeting. The DXY has a key resistance at 105.50. 

EUR/USD sharply reversed from 1.0730 and dropped to the 1.0650 area, indicating that the bearish trend remains intact. On Thursday, the Eurozone preliminary Consumer Confidence Index for September is due. The critical economic report of the week is the PMIs on Friday.

UK inflation data surprised to the downside, affecting expectations for the Bank of England's decision. Prior to the data release, a rate hike was expected, but afterwards, the odds became more balanced, with a pause being favored. On Thursday, the BoE will announce its decision, which is likely to trigger volatility. Market participants will closely scrutinize the decision and the voting of the Monetary Policy Committee.

GBP/USD bottomed at 1.2331 after the data, then rebounded to 1.2420 before reversing following the Fed's announcement, falling to fresh lows around the 1.2330 area. 

Japanese authorities made a verbal intervention early on Wednesday when USD/JPY was trading above 148.00. The pair then pulled back, only to jump to 148.30 following the Fed's meeting later. If the pair extends its run above 148.50, intervention could take place.

USD/CHF posted its highest daily close since late May but remains under 0.9000. The Swiss National Bank will announce its decision on Thursday, which is expected to be a 25 basis points rate hike to 2%.

NZD/USD spiked to 0.5985, the highest in two weeks, only to erase all gains later and close slightly above the 20-day Simple Moving Average (SMA) around 0.5930. New Zealand will report Q2 GDP growth and Credit Card Spending on Thursday.

AUD/USD failed again to hold above 0.6500 and dropped below 0.6450 on the back of a strong US Dollar and also affected by the deterioration in market sentiment.

Metals ended on a weak note after erasing all gains following the Fed. Gold peaked near $1,950 and then tumbled to $1,930 as the Fed reinforced the "higher for longer" mantra. Silver traded above $23.50 but slid back to $23.20.

• The NZD/USD reversed its course and fell towards 0.5930, after reaching a high of 0.5985.
• The US Dollar strengthened on the back of rising US yields after the Fed’s hawkish pause.
• The Fed kept rates at 5.25-5.50% as expected.
• The bank reduced projections of 100 bps of rate cuts in 2024 to 50 bps.

In Tuesday’s session, the NZD/USD saw volatility trading in the 0.5924 - 0.5985 and clearing all of its daily gains. The US Dollar recovered as the Federal Reserve (Fed) hinted at one more hike and pushed back rate cuts in 2024.

Investors assess the Federal Reserve's decision

The US Federal Reserve, as expected, didn't hike interest rates but surprised with a somewhat more hawkish stance, causing the market to fly to safety. They hinted at a single rate hike of 25 basis points later this year as the Summary of Economic Projection’s (SEM) so-called dot plots median rate remained at 5.6% and reduced future rate cut projections for 2024 from 100 to 50 basis points. This shift led markets to anticipate a rate cut not before September 2024. 

During the press conference, Chair Powell emphasised their priority is a smooth economic transition and mentioned the importance of price stability. He then added that the decisions will be decided meeting by meeting, relying solely on incoming data. However, he did not hesitate to comment that the Fed is prepared to hike rates further if necessary.

After the press conference, the short-term US yields stand at multi-year highs, with the 2,5 and 10-year rates rising to 5.15%, 4.55% and 4.36%, their highest in more than 10-year, which seems to make the USD gain interest. In line with that, the DXY index rose back above 105.00 and cleared daily losses.

NZD/USD Levels to watch 

Despite the drop, the technical analysis of the daily chart suggests a neutral to bullish stance for NZD/USD as the bulls work on recovering their ground. Having turned flat in negative territory, the Relative Strength Index (RSI) suggests a potential market equilibrium with balanced selling and buying pressure,while the Moving Average Convergence (MACD) histogram presents larger green bars. In addition, the pair is above the 20-day Simple Moving Average (SMA), but below the 100 and 200-day SMAs, indicating that the bulls aren't done yet and that the outlook is still positive for the short term.

 Support levels: 0.5920 (20-day SMA), 0.5890, 0.5860.

 Resistance levels: 0.6000,0.6030, 0.6050.

NZD/USD Daily chart

• USD/CAD remains volatile, trading between 1.3400 and 1.3450, following the Fed’s decision to keep rates unchanged.
• Fed’s upward revision of 2024 interest rates to 5.1% and commitment to tackle inflation keep traders on their toes.
• Fed Chair Powell’s comments on high energy prices and consumer spending justified the need for higher rates.

The US Dollar (USD) erased its losses against the Canadian Dollar (CAD) after the Federal Reserve decided to keep rates unchanged but revise interest rate expectations for 2024. Nevertheless, the USD/CAD remains trading with slim gains and trades volatile at around 1.3400/1.3480 during the last hour.

USD/CAD trades in a wide 1.3400/1.3480 range as markets digest Fed’s rate projections and Powell’s comments

As expected, the Fed kept rates at the current 5.25%-5.50% range, emphasizing that “Inflation remains elevated” while acknowledging that economic activity is expanding at a solid pace and the labor market remains strong. However, what moved the markets was that the Fed kept rates for 2023 at the same level as projected in June at 5.6% while revising 2024 from 4.6% to 5.1%, according to the Summary of Economic Projections (SEP).

In his press conference, Fed Chair Jerome Powell reiterated the Fed’s commitment to bring inflation toward its 2% target and added that keeping rates unchanged doesn’t mean the Fed has or hasn’t reached the stance of policy they’re seeking while stressing the US central bank is ready to raise rates further if appropriate.

In regards to high energy prices, he said that higher energy prices are significant and can affect inflation. He added that growth has been propelled by consumer spending, which consequently came stronger than expected, which justifies the need for higher rates.

USD/CAD reaction to the Fed’s decision

The USD/CAD reacted upwards to the Fed’s monetary policy statement but halted its advance at around 1.3440. Nevertheless, as shown by the hourly chart, the major resumed its uptrend and turned positive in the day, with buyers eyeing the 1.3450 mark, ahead of testing 1.3500.

USD/CAD Price Action – Hourly chart

USD/CAD Key Technical Levels

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at the September FOMC meeting and responds to questions.

Key takeaways

"As we get closer to the stance of policy that's appropriate, risks become more two-sided."

"Risk of overtightening and undertightening is becoming more equal, need to find our way to the right level of restriction."

"Looks like we've had a bit of a turn of inflation in June."

"Energy prices are very important for consumers."

"It comes down to how sustained high energy prices are."

"If energy prices increase and stay high will affect spending, may affect inflation expectations."

"We tend to look through short-term moves in energy prices."

"Rise in long-term yields is mostly not about inflation expectations, more about growth, supply of treasuries."

"Any decision about future rate cuts will be about what the economy needs."

"We are not looking for a decrease in consumer spending."

"It's a good thing the economy is holding up under rate hikes."

"If economy comes in stronger than expected it means we will have to do more to bring down inflation."

"Concern number one is restoring price stability."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

• Gold takes a rocky path to $1,940.00 on Fed reaction, decides to walk down on Fed rate call.
• Fed outlook sees inflation slightly higher than predicted and holds steady on rates.
• XAU/USD waffled on market reaction, recovery rally fails to extend.

The XAU/USD slipped to $1,940.00 after the Federal Reserve (Fed) held benchmark interest rates at 5.5% for the time being. The Federal Open Market Committee (FOMC) released their inflation expectations looking forward, seeing inflation a little bit higher than it previously forecast.

Fed Chair Jerome Powell took the podium to outline the Fed's position in a speech shortly after the rate call, and his overall tone kept Gold prices bolted to their initial reaction levels.

Read More: 

Jerome Powell speaks on policy outlook following the decision to hold interest rate steady

Fed dot plot points to one more 25 bps hike in 2023 and 50 bps cut in 2024

According to the Fed's 'dot plot', the Summary of Projections (SEP), the US central bank is still on pace to deliver one last 25-basis-point hike in 2023. The median of Fed officials sees the official Fed funds rate at 5.1% by the end of 2024.

Fed Chair Jerome Powell reiterated the Fed's dedication to achieving their long-term 2% inflation target. While Chair Powell noted that the Fed is very likely to be near the top of the rate hike cycle, but reaffirmed that the Fed will base its future decisions on data.

XAU/USD technical outlook

Gold prices initially ramped up during the pre-Fed Wednesday trading session, lifting from the day's opening near $1,931.00, reaching a peak of $1,947.00, just beneath the $1,950.00 critical level.

The XAU/USD swamped out following the Fed, declining to the $1,940.00 level before staging a profit-taking rally that ultimately failed to recover the day's high, and Gold is set to decline further from $1,940.00 if buyers remain on the sidelines.

On daily candlesticks, Gold saw a clear rejection from the 100-day Simple Moving Average (SMA), and current price action is seeing support from the 200-day SMA currently floating up to $1,925.00.

XAU/USD daily chart

XAU/USD technical levels

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at the September FOMC meeting and responds to questions.

Key takeaways

"Government shutdowns don't traditionally have much of a macro effect."

"Energy prices being higher is a significant thing."

"Higher energy prices, sustained, can affect inflation."

"The economy appears to have significant momentum."

"A soft landing is a primary objective, that's what we have been trying to achieve."

"The worst thing we can do is to fail to restore price stability."

"We have the ability to move carefully, that's what we are planning to do."

"Growth has come in stronger than expected, requiring higher rates."

"Last three readings of inflation have been very good, well aware we need more than three good readings."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at September FOMC meeting and responds to questions.

Key takeaways

"In the median forecast, we don't see a big increase in unemployment, but that is not guaranteed."

"Would not call soft landing a baseline expectation."

"It's also possible, if the path to soft landing has widened, it may be decided by factors outside our control."

"The fact we've come this far lets us proceed carefully."

"For now, the question is to try to find the level where we can stay."

"The decision we make at last two meetings this year will depend on the totality of data."

"When I answer a question about cutting, I never intend to send a signal about timing."

"The time will come at some point that it's appropriate to cut."

"Part of decision to cut may be that real rates are rising because inflation is coming down."

"Consumer spending has been driving GDP."

"GDP is not a mandate; the question will be is the heat we see in GDP really a threat to the ability to get to 2% inflation."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

• AUD/USD retreated to 0.6485, still holding daily gains.
• The Fed held rates steady at the 5.25%-5.50% range as expected.
• Jerome Powell sounded neutral during its press conference.

The AUD/USD retreated to 0.6480 from 0.6500 but still holds 0.30% daily gains following the Federal Reserve (Fed) policy statement and Chair Powell's press conference.

The US Federal Reserve, in its September policy meeting, has opted to keep the federal funds rate unchanged within the range of 5.25% to 5.5%, aligning with market expectations. The Fed's policy statement acknowledged continued economic expansion but noted a slowdown in job gains, though they remain robust. The central bank emphasized that inflation remains elevated, underscoring their cautious stance regarding inflation risks. Additionally, the revised Summary of Economic Projections (SEP), reflected in the dot plot, indicates policymakers foresee one more 25 basis points rate increase by year-end.

During his press conference, Jerome Powell maintained a neutral stance. He refrained from committing to another hike and said that the bank would proceed "carefully" meeting by meeting and that the next decisions would be decided on the totality of the incoming data. That being said, Powell commented that if needed, the bank prepared to raise rates further but that the lags of monetary policy and their impact on the economy will be considered in the next meetings.

As a response, the US 2 and 5-year bond yields soared to multi-year highs of 5.12% and 4.51%, respectively, while the 10-year rate stands at 4.34%. The US Dollar, measured by the DXY index, initially rose to 105.20 and then settled at 105.00.

AUD/USD Levels to watch 

 Upon evaluating the daily chart, a neutral to bullish outlook for the short term is seen, with the bulls gradually recovering their strength. With an upward trend above its midline, the Relative Strength Index (RSI) points towards a bullish sentiment, while the Moving Average Convergence (MACD) histogram exhibits larger green bars. In addition, the pair is above the 20-day Simple Moving Average (SMA), but below the 100 and 200-day SMAs, suggesting that despite the recent bearish sentiment, the bulls are still resilient, holding some momentum.

 Support levels: 0.6450, 0.6430 (20-day SMA), 0.6400.

 Resistance levels: 0.6500, 0.6520, 0.6550.

AUD/USD Daily Chart

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at September FOMC meeting and responds to questions.

Key takeaways

"Recent labor market report was a good example of what we want to see."

"We are fairly close to where we need to get."

"I wouldn't attribute huge importance to one hike."

"Nonetheless, we need to get to a place where we are confident we can bring inflation down to 2% over time."

"Stronger economic activity is main reason for needing to do more with rates."

"In terms of neutral rate, you only know when you get there."

"It may be that the neutral rate has risen."

"It is plausible that the neutral rate is higher than the longer run rate."

"It is a good tihng we've seen meaningful rebalancing in labor market without much increase in unemployment."

"I still think, and broadly people still think, there will need to be some softening in labor market."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at September FOMC meeting and responds to questions.

Key takeaways

"Reducing inflation is likely to require a period of below trend growth, some softening of labor conditions."

"The fact that we decided to keep policy rate .where it is doesn't mean we have decided we have, or have not, reached stance of policy we are seeking."

"Majority of policymakers believe it is more likely than not another rate hike will be appropriate."

"We are not making a decision about if rates are sufficiently restrictive."

"We want to see convincing evidence we have reached appropriate level."

"Need to see more progress before we will be ready to reach conclusion we are sufficiently restrictive."

"Real interest rates are meaningfully positive."

"Would not want to say Summary of Economic Projections (SEP) is a plan."

"SEP is what people think will be appropriate as of now to achieve 2% inflation."

"Proposal at the meeting was to maintain the current policy stance, unanimous support for that."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at September FOMC meeting and responds to questions.

Key takeaways

"Inflation has moderated somewhat, expectations appear well-anchored."

"Process of getting inflation down to 2% has long way to go."

"Acutely aware that inflation imposes significant hardship."

"Current stance of policy is restrictive."

"We are committed to achieving and sustaining sufficiently restrictive policy to bring inflation down to 2% over time."

"Nominal wage growth has shown some signs of easing."

"Fed projections are not a plan, policy will adjust as appropriate."

"Will continue making decisions meeting by meeting."

"We are in a position to proceed carefully."

"Prepared to raise rates further if appropriate."

"Will keep rates restrictive until confident inflation moving down to 2%."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

Federal Reserve Chairman Jerome Powell holds a news conference to explain why they have decided to leave the policy rate, federal funds rate, unchanged at the range of 5.25-5.5% at September FOMC meeting and responds to questions.

Key takeaways

"Squarely focused on dual mandate."

"Fed has covered a lot of ground, full effects have yet to be felt."

"We can proceed carefully."

"Our decisions will be based on assessments of data and risks."

"Growth in real GDP has come in above expectations."

"Consumer spending particularly robust."

"Activity in housing has picked up."

"Higher rates weighing on business investment."

"Labor market remains tight."

"Labor supply and demand continue to come into better balance."

Nominal wage growth has shown some signs of easing."

"Labor demand still exceeds supply."

About Jerome Powell (via Federalreserve.gov)

"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
 

• DXY recovered ground, trading between 105.00 and 105.20, following the Fed’s decision to hold rates unchanged.
• Fed’s upward revision of 2024 interest rates from 4.6% to 5.1% halts the US Dollar’s fall.
• Market eyes now turn to Fed Chair Jerome Powell’s press conference at 18:30 GMT for further cues.

The US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six currencies, recovers some ground, as the Federal Reserve (Fed) holds rates unchanged while keeping the door open for further tightening. At the time of writing, the DXY trades seesaw within the 105.00/105.20 range.

DXY Trades in 105.00/105.20 Range as Fed Keeps Rates Steady but Signals Future Tightening

As anticipated, the Fed kept interest rates unchanged and projects an additional rate hike in 2023. The FOMC’s monetary policy statement emphasized high inflation, while Fed officials noted solid economic growth and a strong labor market.

While the monetary policy statement didn’t undergo significant changes compared to the previous decision, the sudden strength of the US Dollar was the Fed officials’ upward revision of interest rates for 2024, increasing it from 4.6% to 5.1%. This adjustment contributed to the US Dollar’s sudden surge.

That said, market participants’ focus shifted toward the Fed Chair Jerome Powell’s press conference at 18:30 GMT.

US Dollar Index market’s reaction

On the Fed statement release, the DXY rallied above the 105.00 figure, hit 105.19, and retreated toward the 105.00 mark. If Fed Chair Jerome Powell delivers hawkish remarks, upside risks remain, with the daily high of 105.25 up next as resistance, followed by the September 14 high at 105.43. Conversely, expect a re-test of the daily low of 104.66.

US Dollar Index Key Technical Levels

According to the Federal Reserve's revised Summary of Projections (SEP), also known as the dot plot, the US central bank remains on track to raise the policy rate by another 25-basis-point this year before lowering it by 50 bps of rate cuts in 2024.

Breaking: Fed holds interest rate steady at 5.25%-5.5% as expected.

Key takeaways from the SEP

Fed officials' median view of fed funds rate at end-2025 3.9% (prev 3.4%).

Fed officials' median view of fed funds rate at end-2024 5.1% (prev 4.6%).

Fed officials' median view of fed funds rate at end-2026 2.9%.

Fed officials' median view of fed funds rate in longer run 2.5% (prev 2.5%).

Fed projections imply one more 25-basis-point rate hike this year and 50 bps of rate cuts in 2024, versus 100 bps of 2024 cuts in June projections.

Fed policymakers see much higher GDP growth of 2.1% in 2023, a lower unemployment rate and more progress on core inflation than they saw in June.

Fed policymakers see much higher GDP growth of 2.1% in 2023, a lower unemployment rate and more progress on core inflation than they saw in June.

• GBP/USD declined towards 1.2330 after the release of the Fed's statement
• The Fed held rates steady at 5.25% -5.50% as expected.
• The dot plot projections were kept at 5.6%.

Following the Federal Reserve (Fed) decision, the GBP/USD fell to a low of around 1.2330 and then recovered to 1.2365. The USD measured by the DXY index recovered back above 105.00, while the US Treasury yields are reversing their course, clearing daily declines with the 2,5 and 10-year rates standing at 5.14% (high since 2006), 4.54% (high since 2007), 4.35%.

The policy statement revealed that the Fed decided to hold rates at the 5.25%-5.50% range. Regarding the famous dot plots, they showed that 12 members of the Federal Open Market Committee (FOMC) are still seeing one more 25 basis point hike as the median projections stood at 5.6%. In addition, on the economic forecast front, Unemployment and Core Personal Consumption Expenditures (PCE) inflation estimations were downgraded while the Gross Domestic Product (GDP) projections were revised to the upside. Moreover, the longer-run interest rate was revised from 2.8% to 3.3% and seems to be spooking investors and benefiting the USD. Overall, the Federal Reserve is aggressive on interest rates but optimistic about the US economy.

Focus now shifts to Chair Powell's presser.

GBP/USD Intra-day chart

• EUR/USD trades in a volatile 1.0680/1.0720 range after the Fed keeps rates unchanged but signals future tightening.
• Fed’s upward revision of the Federal Funds Rate for 2024 to 5.1% triggers a sharp drop in the EUR/USD pair.
• Pair remains sensitive to Fed Chair Powell’s upcoming remarks, with the daily low of 1.0672 in sight.

The EUR/USD dropped sharply late in the New York session as the US Federal Reserve (Fed) decided to keep rates unchanged at the 5.25%-5.50% range, though it stood to its restrictive stance. Also, the Fed upward revised the Federal Funds Rate (FFR) to 5.1% for 2024, as shown by the Summary of Economic Projections (SEP). At the time of writing, the EUR/USD trades volatile at around the 1.0680/1.0720 area.

Summary of the Federal Open Market Committee decision

The Fed held rates unchanged as expected and kept the door open for additional tightening toward the end of the year. In their monetary policy statement, Fed officials emphasized that “Inflation remains elevated” while acknowledging that economic growth is expanding at a solid pace while the job market remains tight.

Although the monetary policy statement did not change much from the previous decision, Fed officials’ upward revision to interest rates 2024 from 4.6% to 5.1% was the main reason behind the sudden US Dollar strength.

EUR/USD market’s reaction

As newswires crossed, the EUR/USD tumbled below the 1.0700 mark, extending its losses past the R1 pivot point at 1.0706, though shy of testing the daily low of 1.0672. Nevertheless, as the Fed Chair Powell looms, expect the pair to remain trading volatile during the rest of the New York session.

EUR/USD Key Technical Levels

• USD/JPY rebounds on updated Fed inflation outlook.
• Greenback reclaims most of Thursday's downside in the run-up to Fed rate call.
• Fed keeps rates at 5.5%, but sees inflation higher than initially expected.

The USD/JPY pair is catching a lift up the charts following the Federal Reserve's (Fed) rate call and inflation outlook update, pushing into fresh highs near the 148.00 handle as the Greenback (USD) catches a ride on rising inflation expectations from the Fed.

Read more:

Fed Statement comparison: September vs July

Breaking: Fed leaves interest rate unchanged at 5.25%-5.5% as expected

The USD/JPY kicked off from 147.50 to climb a solid 50 pips following the Fed's rate call; the Fed kept their benchmark rate at 5.% as markets broadly expected, but the Federal Open Market Committee's (FOMC) latest economic expectations sees near-term inflation rising more than expected.

The FOMC's 1-year forecast sees inflation hitting into 5.1% compared to the previous printing of 4.6%, and markets are jostling for position ahead of the Federal Reserve's upcoming press conference due at the bottom of the hour.

USD/JPY technical outlook

The USD/JPY reversed Wednesday's flows, ramping up into the 148.00 handle after spending most of the early session on the down side.

Dollar (USD) bulls will be looking to reclaim the day's early high near 148.20, while shorts will have their work cut out for them forcing the pair back to the day's lows into 147.50.

Today's topside action for the USD/JPY has the pair set to challenge ten-month highs.

USD/JPY technical levels

• Fed keeps rates unchanged as expected at 5.25-5.50%. 
• The Summary of Economic projections implies one more 25 bps rate hike this year.
• US Dollar rises sharply after the FOMC statement, weighing on Gold. 

Gold took a step down on reaction to the Federal Reserve's (Fed) rate call for Wednesday, with the XAU/USD testing the waters in the $1,940.00 region.

The Fed kept its benchmark interest rate at 5.5% as investors broadly anticipated, but the US central bank saw an uptick in their forward-looking inflation expectations.

Markets are seeing the 1-year Fed inflation expectations lifting half a percent to 5.1% from the previously recorded 4.6%.

The XAU/USD fell off the $1,946.00 level after the release, declining into challenge range of the $1,940.00 handle.

Read more:

Fed Statement comparison: September vs July

Breaking: Fed leaves interest rate unchanged at 5.25%-5.5% as expected

FOMC meeting statement comparison

July 26September 20, 2023

Recent indicators suggest that economic activity has been expanding at a moderatesolid pace. Job gains have been robustslowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raisemaintain the target range for the federal funds rate toat 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

Follow Fed meeting – Live coverage
 

• The EUR/GBP is catching some lift on the back of softer-than-expected UK inflation data.
• The week is still heavy on the economic calendar, with UK and EU PMI figures still in the barrel.
• The BoE is set for one last rate hike on Thursday.

The EUR/GBP caught a bump higher during Wednesday trading after the United Kingdom’s (UK) inflation reading came in below market expectations, sending the Pound Sterling (GBP) lower and giving the Euro (EUR) a leg up.

The Euro-Pound pair lifted from the day’s open near 0.8620 after the UK’s Consumer Price Index (CPI) figures broadly missed the mark, with August’s CPI reading coming in at just 0.3%, versus the forecast 0.7%.

The previous month’s CPI declined by 0.4%, and markets are readjusting their Pound Sterling bets as the Bank of England (BoE) is set to give just one more rate hike this cycle.

The BoE is slated to give its latest rate call at 11:00 GMT on Thursday, where the central bank is broadly expected to raise its benchmark interest rate to 5.5% from 5.25. Inflation has proven to be a sticky point for the UK’s domestic economy, but the last round of inflation figures means the rate of price increases has begun to slow.

UK inflation slows down, BoE to be pressured off rate hike cycle

GBP traders will want to reassess inflation expectations and what that could mean for the rate hike cycle moving forward.

On the economic calendar, The BoE will be followed up by Retail Sales and Purchasing Manager Index (PMI) figures on Friday, where the EU will also see September’s preliminary PMIs.

UK Retail Sales are expected to rebound to 0.5% from the last reading of -1.2%, while the UK PMI composite is seen ticking up slightly from 48.6 to 48.7.

On the EUR side, pan-EU composite PMI figures are forecast to slide from 46.7 to 46.5.

If market data comes in at expectations, it could challenge the Euro’s current position on the charts.

EUR/GBP technical outlook

The EUR/GBP’s Wednesday bounce takes the pair firmly up through the 0.8640 level, and is currently cycling the 0.8650 level as traders look for further momentum.

A rising trendline is currently baking into the charts on the hourly candles, with the 34-hour Exponential Moving Average (EMA) rising into 0.8635.

On the daily candles, The Euro is set to confirm a break of the descending trendline from July’s swing high into the 0.8700 handle. The 200-day Simple Moving Average (SMA) currently sits just beyond, parked near 0.8710

EUR/GBP technical levels

• AUD/USD surges to 0.6507, up 0.83%, as US bond yields retreat and the US Dollar Index drops 0.46% to 104.72.”
• Fed’s upcoming decision and economic projections eyed; any downward revisions for 2024 could further boost the Aussie.
• Upbeat Chinese data and the RBA’s openness to further tightening underpin the currency’s strength.

The Australian Dollar (AUD) is climbing sharply against the US Dollar (USD) minutes ahead of the US Federal Reserve’s (Fed) monetary policy decision, as US bond yields edge lower after climbing to multi-year highs on Tuesday. Therefore, the AUD/USD is trading at 0.6507, after hitting a daily low of 0.6448, gains 0.83%.

Aussie Dollar gains 0.83% against the US Dollar as markets brace for the Fed’s decision

The last hour has witnessed an increase in volatility as the Fed’s decision approaches. Wall Street trades mixed, the outlier being the Nasdaq Composite, down 0.08%. The Greenback (USD) remains under pressure, down 0.46%, as depicted by the US Dollar Index (DXY) at 104.72. The fixed income space shows US bond yields dropping while traders safety their seatbelts.

Market participant estimates see the Fed keeping rates unchanged but delivering a hawkish statement. Fed policymakers will update their economic projections, with speculations of growth to be upward revised and revised inflation down, with the only question being: where does the Fed see the Federal Funds Rate in 2023, 2024, and 2025?

The latest Fed’s Summary of Economic Projections (SEP) foresaw the FFR at 5.6% in 2023 and 4.6% in 2024. Any downward revisions for 2024 could weigh on the Greenback, and the AUD/USD could extend its gains for the rest of the day.

Money market futures show the Fed’s odds for a November rate hike are 27% for a quarter of a percent increase, ahead of the Federal Open Market Committee (FOMC) decision. For December, the odds stand at 34.1%.

On Australia’s front, the Aussie (AUD) remains underpinned by upbeat news from China. As recent Chinese data has improved, the People’s Bank of China (PBoC) kept the one and 5-year loan prime rates (LPR) unchanged.

Furthermore, the latest Reserve Bank of Australia (RBA) monetary policy minutes noted that members discussed weak domestic demand and contagion from China’s economic slowdown, which were seen as factors for weak economic growth. However, the RBA kept the door open for further tightening if inflation probes to be stickier than expected.

The AUD/USD is set to trade volatile amidst the Fed’s decision, delivered at 18:00 GMT. The decision would be followed by the Federal Reserve Chair Jerome Powell’s press conference, at around 18:30 GMT.

AUD/USD Price Analysis: Technical outlook

The daily chart portrays the pair as neutral-biased but threatening to turn neutral-upwards as the pair approaches the August 30 high of 0.6522. a breach of that level, and the AUD/USD could challenge the 50-day Moving Average (DMA) at 0.6540 before testing the next resistance area found at 0.6616, the August 10 high. Failure to extend its gains could pave the way for a pullback toward the September 15 swing high at 0.6474.

• NZD/USD advanced towards 0.5984, its highest level in September.
• The US Dollar is trading soft on the back of US yields retreating.

On Tuesday, the NZD/USD faced intense buying pressure, soaring to 0.5984, as the US Dollar is trading weak against most of its rivals ahead of the Federal Reserve (Fed) decision later in the session.

The Fed is widely expected to maintain its policy rate within the 5.25%-5.5% range, a decision largely priced into the markets. However, the focus will shift to the revised Summary of Economic Projections (dot plot) and Chair Jerome Powell's comments, where investors will look for clues regarding forward guidance. With concerns over rising oil prices and robust US economic activity, there's potential for a hawkish tone from the Fed, which could revive the US Dollar and halt the pair’s upward momentum.

On the data front, no relevant data will be released for either country during the session. For the rest of the week, investors will eye Trade balance data for New Zealand on Friday’s Asian session and S&P PMIs from September from the US during the American Session.

NZD/USD Levels to watch 

 According to the daily chart, the technical outlook for the NZD/USD remains neutral to bullish as the bulls are recovering ground. With an upward trend above its midline, the Relative Strength Index (RSI) points towards a bullish sentiment, while the Moving Average Convergence (MACD) histogram exhibits rising green bars. To add to that, the pair is above the 20-day Simple Moving Average (SMA), but below the 100 and 200-day, indicating that there is still some light for the bulls and that the bears have still more ground to cover

 Support levels: 0.5920 (20-day SMA), 0.5890, 0.5860.

 Resistance levels: 0.6000,0.6030, 0.6050.

NZD/USD Daily Chart

• USD/MXN approaches the 17.00 barrier, trading at 17.0296, as traders await the Federal Reserve’s monetary policy cues.
• US Dollar Index dropped 0.39% to 104.80, adding headwinds to the Greenback ahead of the Fed’s hawkish expectations.
• Mexican economic data on the horizon: Retail Sales and Inflation figures to be released this week could influence Peso’s trajectory.

The Mexican Peso (MXN) stages a comeback and appreciates against the US Dollar (USD) as traders remain on the sidelines with the Federal Reserve’s monetary policy decision looming. Although speculations for additional tightening remain, the USD/MXN pair approached the psychological 17.00 barrier, exchanging hands at around 17.0000 after hitting a daily high of 17.0974.

USD/MXN pierced the 17.00 barrier as markets eye Fed’s decision and upcoming Mexican data

The market sentiment is downbeat, as seen by US equities. US Treasury bond yields are dropping, a headwind for the US Dollar (USD). The Federal Reserve is expected to keep rates unchanged at the 5.25%-5.50% range and deliver a hawkish message. At the same time, its officials would update their economic projections, including the Federal Funds Rate (FFR) for the remainder of the year, 2024 and 2025. A downward revision to the FFR would be considered dovish, weakening the Greenback.

The money market futures show the Fed’s odds for a November rate hike are at 27% for a quarter of a percent increase, ahead of the Federal Open Market Committee (FOMC) decision. For December, the odds stand at 34.1%.

The US Dollar Index, a gauge of the buck’s value vs. a basket of six currencies, drops 0.39% and sits at 104.80, weighing on the USD/MXN pair.

Aside from this, a scarce Mexican economic docket has not been an excuse for USD/MXN sellers to step in an boost the emerging market currency. Tomorrow, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) will release Retail Sales data and Mexican Inflation on Friday.

Given the current interest rate differential between Mexico and the US favors the former, we could expect further downside in the USD/MXN.

USD/MXN Price Analysis: Technical outlook

From a technical perspective, the break below 17.0000 could pave the way for further downside, but the 50-day Moving Average (DMA) at 17.0123 is holding the fort for USD/MXN buyers. Once cleared, the next stop would be the August 28 swing low of 16.6923. On the flip side, if the pair jumps and reclaims the September 18 high of 17.1812, that would pave the way for a recovery towards the 100-DMA at 17.2007.

• EUR/USD breaking to the upside as markets position ahead of the Fed.
• The Fed is expected to stand pat on interest rates, give updated economic outlook.
• Fed chair Jerome Powell to hold press conference 30 minutes after data release.

The EUR/USD is stepping higher in the run-up to the Federal Reserve’s (Fed) showing today, reaching for the 1.0750 level. The US Dollar (USD) has been giving up ground to the Euro (EUR) throughout the Wednesday trading session as investors brace for the Fed’s upcoming rate call and updated ‘dot plot’ projections.

Next up: Fed rate, outlook, and press conference

Read more: Interest rates to remain unchanged as end of tightening cycle looms

Markets are broadly expecting the Fed to hold steady on their benchmark interest rate band at 5.25% - 5.5%, but the key to today’s Fed action will be their updated Summary of Economic Projections (SEP). Investors are still currently mixed on their Fed projections for the rest of the year, with 40% of market participants still expecting one more rate hike this year.

 Elsewhere on the docket, the President of the European Central Bank (ECB) Christine Lagarde is slated to give a speech during the Thursday market session. ECB President Lagarde will be delivering speaking notes at the Mediterranean meetings being held in Marseilles.

Friday will also bring Purchasing Manager Index (PMI) data for both the Eurozone and the US, capping off an action-packed midweek.

PMIs for the pan-European economic zone are expected to come in mixed, with the composite figure expected to decline slightly from 46.7 to 46.5.

On the US side, PMIs are forecast to tick upwards, albeit slightly. US manufacturing PMIs are forecast to tick from 47.9 to 48.0, and services is seen giving a similar improvement from 50.5 to 50.5.

EUR/USD technical outlook

The EUR/USD pair is bouncing for Wednesday’s pre-Fed action, climbing over the 200-hour Simple Moving Average (SMA) to claim territory north of the 1.0730 level. The pair kicked off Wednesday’s trading session near 1.0680 and has done nothing but ramp up as Greenback traders hold their orders.

On the daily candlesticks, the EUR/USD has been gaining some bullish momentum from the recent bottom near 1.0650, but the pair is set for a faceoff with a descending trendline from July’s last swing high near 1.1250. Continued upside pressure will also have to contend with the 200-day SMA, currently floating just beneath 1.0850.

EUR/USD daily chart

EUR/USD technical levels

• USD/CHF declined by 0.28% on the day to 0.8950.
• US yields and the DXY index are declining.
• All eyes are on the Fed’s decision and the updated dot plots.

On Wednesday, the USD/CHF lost some ground and declined to the 0.8950 area.

The US 10-year yield, after hitting its highest level since 2007 at 4.36%, is consolidating at 4.32%. The 2 and 5-year yields are also backing down, retreating to 5.06% and 4.47%, respectively, while the US DXY index fell below 105.00 to 104.85, seeing 0.30% losses.

Regarding the Federal Reserve (Fed) decision later in the session, markets widely anticipate that the bank will hold rates steady at the 5.25%-5.50% range. However, the Fed have all the reasons to remain hawkish due to rising Oil prices and the solid economic activity seen in the US, which could exacerbate inflationary pressures. 

In addition, investors will closely monitor the updated dot plots, which in the June meeting, the median rates were revised upwards to 5.6% from 5.1% in March, as they will provide clearer guidance on the next decisions. Chair Powell’s stance will also be important for markets.

USD/CHF Levels to watch 

 According to the daily chart, the technical outlook for USD/CHF leans neutral to bearish as signs of bullish exhaustion emerge. The Relative Strength Index (RSI) points towards a potential reversal, as its positive slope above the midline weakens after being rejected by the 70.00 threshold, while the Moving Average Convergence (MACD) displays decreasing green bars. Furthermore, the pair is above the 20-day Simple Moving Average (SMA), below the 100-day SMA, but above the 200-day SMA, highlighting the continued dominance of bulls in the broader perspective.

 Support levels: 0.8940, 0.8900, 0.8885.

 Resistance levels: 0.8980, 0.9000, 0.9038 (200-day SMA)

USD/CHF Daily Chart

• The GBP/JPY is stuck in the middle near 183.00 as markets await inspiration.
• UK CPI came in less than expected, and investors will be pivoting to keep an eye on the BoE next.
• UK inflation appears to be easing off faster than markets expected, trapping the BoE into one more rate hike.

The GBP/JPY is strung along the 183.00 handle in Wednesday trading. The United Kingdom’s (UK) inflation reading during the European market session failed to bolster the Pound Sterling (GBP) after the headline printing failed to meet the mark. Guppy traders will now be keeping their heads low ahead of Thursday’s Bank of England (BoE) showing.

UK CPI misses the mark, BoE incoming with another rate call

UK Consumer Price Index (CPI)figures broadly came in below expectations. August’s monthly inflation printed at 0.3%, compared to the forecast 0.7%, though still an improvement from the previous period’s 0.4% decline.

The UK Retail Price Index also failed to meet market expectations, coming in at 0.6% for the same period. The last print came in at -0.6%, and markets were hoping for 0.9%.

Inflation within the British economy appears to be falling faster than investors initially anticipated, and the swooning pace of price growth will keep the BoE firmly on their path of ‘one and done’. Markets are expecting the UK’s central bank to deliver one more 25-basis-point rate hike tomorrow at 11:00 GMT. The expected hike will bring the BoE’s benchmark rate to 5.5%.

After the BoE’s showing on Thursday, all that remains for the GBP/JPY this week will be the Bank of Japan’s (NoJ) rate call on Friday, along with the UK’s Purchasing Manager Index (PMI) figures.

The BoJ’s interest rate regime is broadly expected to remain at -0.1%, while the UK’s composite PMI reading is forecast to improve slightly, from 48.6 to 48.7. UK Retail Sales will also be landing on Friday, which is expected to rebound from -1.2% to 0.5%.

UK Retail Sales and composite PMI are scheduled to drop at 06:00 and 08:30 GMT, respectively.

GBP/JPY technical outlook

The Guppy has been struggling to put distance between itself and the 183.00 level recently, and current action has been under pressure from the 200-hour Simple Moving Average (SMA) currently sinking from the 183.40 region.

The GBP/JPY sunk to a session low just beneath the 182.50 level after the UK’s CPI reading missed the mark, but market flows recovered to keep the pair relatively flat on the day.

On the daily candlesticks, the pair has been consolidating for the better part of a week, trapped near 183.00. The 100-day SMA is providing rising support from the 180.00 major handle, and traders will want to wait for a confirmation before assuming a breakout from the current consolidation zone is a done deal.

GBP/JPY daily chart

GBP/JPY technical levels

• USD/JPY trades cautiously at 147.75, just off its YTD high, as traders await the Fed’s monetary policy decision.
• US Dollar Index dropped 0.36% to 104.82 amid falling Treasury yields, adding pressure on the Greenback ahead of the Fed meeting.
• Fears of Japanese FX intervention rise, with comments from US Treasury Secretary Janet Yellen and former Japanese Vice Minister Takehiko Nakao fueling uncertainty.

The USD/JPY remains subdued early in the North American session as traders brace for the US Federal Reserve’s monetary policy decision. Also, risks of an intervention by Japanese authorities in the Forex markets refrain buyers from opening fresh positions. At the time of writing, the pair exchanges hands at 147.75 after printing a new year-to-date (YTD) high of 148.16

Markets await Fed’s hawkish hold as Japanese authorities hint at currency intervention

USD/JPY price action remains flat, with traders waiting for Fed Chair Jerome Powell and Co. The markets expect a hawkish hold by the Fed, though the Greenback (USD) remains pressured, as shown by the US Dollar Index (DXY) at 104.82, dropping 0.36%. One reason behind the move is US Treasury bond yields, which are dropping, after hitting multi-year highs on Tuesday.

Besides delivering its rate decision, the Fed would update its economic projections for the rest of the year and 2024 and 2025. Investors must be keen to scrutinize their economic forecasts, which could add more volatility besides the headline. Downward revisions for the Federal Fund Rates (FFR) could be seen as a dovish reaction by the central bank. Meanwhile, keeping them unchanged could add to the mantra of maintaining rates “higher for longer.”

Aside from this theme, investors’ fear of a “possible” intervention by Japanese authorities is gaining traction. US Treasury Secretary Janet Yellen said she could understand Japanese authorities’ currency intervention if it was to control volatility.

In the meantime, a former Vice Minister of Finance for International Affairs in Japan, Takehiko Nakao, said the Bank of Japan should ditch its ultra-loose monetary policy and that Japan could intervene in the FX markets to support the Yen.

USD/JPY Price Analysis: Technical outlook

From a technical perspective, the USD/JPY is at the brisk of conquering 148.00 and extends its gains towards the October 31 daily high of 148.84, which, if cleared, the USD/JPY could re-test the 150.00 mark. Nevertheless, traders remain cautious of a possible intervention. On the downside, a drop below the September 20 low of 147.62 could pave the way to test the Tenkan-Sen at 147.03. Additional support levels emerge below the latter, with the Senkou Span A at 146.66 and the Kijun-Sen at 146.30.

Developments in Congress this week will be crucial to determine whether the government enters a shutdown at the end of September. Economists at TD Securities analyze the consequences of a US government shutdown.

A shutdown that lasts for one month could shave 0.2pp or slightly more from GDP growth

The Bank of England (BoE) will announce its Interest Rate Decision on Thursday, September 21 at 11:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of 10 major banks.

The BoE is expected to raise interest rates by 25 basis points (bps) to 5.50%. Wednesday's downside shock to August inflation could lead the Monetary Policy Committee (MPC) to signal an end to the hiking cycle. 

Rabobank

TDS

Deutsche Bank

ING

Nomura

SocGen

Danske Bank

Citi

Wells Fargo

ABN Amro

Economists at TD Securities discuss the Federal Reserve Interest Rate Decision and its implications for the Bloomberg Dollar Spot Index.

More Hawkish (10%)

Base Case (70%)

Dovish (20%)

The Brazilian Central Bank (BCB) meets today. However, the Interest Rate Decision is unlikely to have a significant impact on the Real (BRL), economists at Commerzbank report.

BCB in rate cut mode

• Silver price strengthens as US Dollar corrects sharply ahead of the Fed policy.
• The Fed is expected to keep interest rates unchanged but may deliver a hawkish interest rate outlook.
• Silver price climbs strongly above the 38.2% Fibonacci retracement around $23.34.

Silver price (XAG/USD) climbs to near $23.50 after delivering a breakout of the back-and-forth trades in the early New York session. Earlier, the white metal remained rangebound as investors sidelined ahead of the monetary policy by the Federal Reserve (Fed).

The S&P500 opens on a slightly bullish note ahead of the Fed monetary policy. The Fed is widely anticipated to keep interest rates unchanged at 5.25-5.50% as core inflation is consistently falling while the economy remains resilient.

Analysts at ANZ expect the FOMC will keep rates steady and maintain its tightening bias. There is evidence that both inflation and labor market pressures are easing, but considerable further progress is needed. We expect the FOMC will upwardly revise its 2023 and 2024 GDP forecasts. This could imply a slower speed of normalization in the Fed’s dual mandate, requiring rates to stay higher for longer.

The US Dollar Index (DXY) extends its correction below the crucial support of 105.00 as bets for neutral interest rate policy from the Fed deepen. Meanwhile, 10-year US Treasury yields dropped sharply to near 4.32%. A surprise discussion about rate cuts from Fed policymakers might shoot demand for US equities and weaken the appeal for the US Dollar.

Silver technical analysis

Silver price climbs strongly above the 38.2% Fibonacci retracement (plotted from August 30 high around $25.00 to September 14 low at $22.30) around $23.34. The 20-period Exponential Moving Average (EMA) around $23.20 is providing a cushion to the Silver bulls.

The Relative Strength Index (RSI) (14) climbs above 60.00, which indicates that the bullish impulse has been triggered.

Silver two-hour chart

The suspense around the Fed meeting today is not about the decision itself but rather the new projections for (median) interest rates next year. Upgrade of 2024 dot at the last three meetings did not translate into a stronger Dollar or higher 10Y yield, economists at Société Générale report.

Could this time be different?

On a trade-weighted basis, Sterling has had a good year. Economists at ING analyze GBP outlook ahead of Bank of England’s meeting on Thursday.

An as-expected 25 bps hike amid some hawkish rhetoric looks unlikely to be a game-changer

USD edges a little lower as markets idle ahead of FOMC. Economists at Scotiabank analyze Greenback’s outlook.

The first move has not always been the right move 

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

• EUR/USD resumes the upside beyond the 1.0700 barrier.
• Further gains should meet the weekly high near 1.0770.

EUR/USD leaves behind Tuesday’s pullback and reclaims the area above 1.0700 the figure during pre-FOMC trade on Wednesday.

If the rebound gathers extra steam, the pair should face a minor hurdle at the weekly high of 1.0767 (September 12) prior to the critical 200-day SMA at 1.0828.

Despite the so far two-day bounce, the pair’s underlying bearish sentiment remains unchanged and leaves the door open to extra pullbacks in the short-term horizon. Against that backdrop, further losses could see the September low at 1.0631 (September 14) revisited ahead of the March low of 1.0516 (March 15).

While below the key 200-day SMA, the pair is likely to face extra weakness.

EUR/USD daily chart

Interest rate expectations and the market's optimism about the US economy are key drivers of the upward trend in USD/CAD since July. Economists at Commerzbank analyze the pair’s outlook.

CAD should benefit if the BoC keeps its key rate at a higher level for longer and cuts it less than the Fed

Source: Commerzbank Research

• USD/CAD delivers a modest correction as investors remain cautious ahead of Fed policy.
• US Yellen said that she doesn’t see any signs that the economy will enter into a downturn.
• The Canadian Dollar strengthens as investors see further upside in the oil price on supply concerns

The USD/CAD pair remained subdued on Wednesday as investors await the monetary policy decision from the Federal Reserve (Fed). The Lonnie asset faces a nominal correction amid the rangebound US Dollar Index (DXY).

The USD Index corrects to near the crucial support of 105.00 as investors hope that the Fed will deliver a neutral interest rate policy, keeping interest rates unchanged at 5.25-5.50%. However, a hawkish interest rate outlook cannot be ruled out as remaining inflationary pressures in excess of the desired rate are most sticky.

The S&P500 is expected to open on a positive note, considering bullish cues from overnight funds. Meanwhile, investors would remain worried about the Fed policy as strong discussions about one more interest rate increase this year would trigger the risk-aversion theme and strengthen the US Dollar.

About the US economic outlook, US Treasury Secretary Janet Yellen on Monday said that she doesn’t see any signs that the economy will enter into a downturn as inflation is coming down and the labor market is quite strong. However, Yellen warned that a failure by Congress to pass the legislation to keep the government in control could elevate the risk of an economic slowdown.

Meanwhile, the Canadian Dollar strengthens as investors see further upside in the oil price on supply concerns due to production cuts by Saudi Arabia and Russia. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

The Canadian Dollar remained volatile on Wednesday after a mixed inflation report for August. The annual headline inflation accelerated sharply to 4% against the estimates of 3.8% and the former release of 3.3%. The core CPI that excludes volatile oil and food prices expanded nominally by 0.1%, indicating subdued demand for non-durable goods and services. On an annualized basis, the core CPI rose to 3.3%.

• DXY breaks below the 105.00 level once again on Wednesday.
• A deeper pullback could see the weekly low near 104.40 revisited.

DXY resumes the decline and puts the 105.00 region to the test once again on Wednesday.

In case the corrective decline picks up further pace, the index could extend the drop to, initially, the weekly low of 104.42 (September 11). A sustained pullback below the latter could prompt the index to embark on a potential test of the critical 200-day SMA, today at 103.03.

While above the key 200-day SMA, the outlook for the index is expected to remain constructive.

DXY daily chart

The US Dollar is continuing to trade close to recent highs ahead of today’s FOMC meeting. Economists at MUFG Bank discuss Greenback’s outlook.

Hawkish hold from Fed to support USD

• The Federal Reserve is widely expected to leave its policy rate unchanged at 5.25%-5.5%.
• The Fed will publish the revised Summary of Economic Projections, known as the dot plot. 
• The US Dollar valuation could be impacted by the revised dot plot and FOMC Chairman Powell’s comments.

The Federal Reserve (Fed) is expected to leave its policy rate unchanged at the range of 5.25%-5.5%. The decision will be announced at 18:00 GMT. 

Along with the usual statement, the Fed will also release the revised Summary of Economic Projections (SEP), the so-called dot plot, and FOMC Chairman Jerome Powell will comment on the policy decisions and economic outlook in the post-meeting press conference. 

The market positioning suggests that a no change in the Fed’s policy rate is fully priced in. However, investors still see a nearly 40% probability that the Fed will opt for one more 25 basis points (bps) interest-rate hike before the end of the year, as per the CME Group FedWatch Tool.

Analysts at Wells Fargo expect the dot plot to paint a more optimistic outlook:

“We look for the FOMC to keep its target range for the federal funds rate unchanged at 5.25%-5.50% at its meeting on September 20.”

“We expect that the September SEP will portray a more optimistic outlook for the US economy than the last SEP did in June. Specifically, we look for the FOMC to raise its forecast for real GDP growth this year while also nudging down its outlook for inflation. We do not think the median dots for 2024 and 2025 will change much, if at all, though some of the highest dots may be reined in a bit.”

Federal Reserve interest rate decision: What to know in markets on Wednesday

• The US Dollar Index, which tracks the USD’s performance against a basket of six major currencies, gained nearly 2% in August and it’s up more than 1.5% in September. 
• The benchmark 10-year US Treasury bond yield reached its highest level since 2007 above 4.4% in September before retreating toward 4.3% n the Fed week.
• The Consumer Price Index (CPI) rose 0.6% in August, marking its biggest monthly increase since July 2022. The Core CPI, which strips volatile food and energy prices, increased 0.3% – a slightly stronger pace than the market expectation of 0.2%. 
• The European Central Bank (ECB) unexpectedly raised key rates by 25 bps following the September policy meeting but hinted that it might have reached the end of its tightening cycle.
• Wall Street’s main indexes started the week on a slightly bullish note but failed to gather momentum. The S&P 500 Index closed flat on Tuesday after posting small gains on Monday.
• US Treasury Secretary Janet Yellen said on Tuesday that given the economy was operating at full employment, US growth needed to slow to a rate more in line with its potential growth rate to bring inflation back to target levels.

FOMC speech tracker: Hawkish bias still in place

Federal Reserve officials had a relative hawkish bias in their speeches between their June and July meetings. After having paused interest rate hikes during June, Fed officials helped shape strong expectations of a return to hiking in July with their hawkish vocabulary, with some also hinting at the need for more than one rate hike. Fed Chair Jerome Powell was active with four appearances in this time, two in his semi-annual testimony in the US Congress, and then a couple more overseas in the ECB Forum and on the Bank of Spain in Madrid, mixing balanced with somewhat hawkish remarks. It will be interesting to see if the FOMC board members keep this tone after their meeting on Wednesday.

*Voting members in 2023.

FOMC speech counter

This content has been partially generated by an AI model trained on a diverse range of data.

When will the Fed announce policy decisions and how could they affect EUR/USD?

The Federal Reserve is scheduled to announce its interest rate decision and publish the revised Summary of Economic Projections (SEP), the so-called dot plot, at 18:00 GMT. This will be followed by the post-meeting FOMC press conference at 18:30 GMT. Investors expect the Fed to leave the policy rate unchanged but see a strong probability for one more rate hike in any of the two remaining Fed meetings this year. 

Following the July policy meeting, the Fed decided to raise the policy rate by 25 bps. In the post-meeting press conference, Chairman Jerome Powell delivered some cautious comments on the policy outlook and revived expectations that the Fed might leave interest rates steady for the rest of the year. "We haven't made any decisions about any future meetings,” Powell told reporters and added that they believe the monetary policy is restrictive. "If we see inflation coming down credibly, we can move down to a neutral level and then below neutral at some point,” he noted.

However, Since the July meeting, US macroeconomic data have highlighted the resilience of the economy and tight conditions in the labor market, causing investors to reassess the Fed’s rate outlook. In August, Nonfarm Payrolls rose by 187,000, beating the market estimate of 170,000, and the annual wage inflation held at 4.3%. Moreover, the PMI surveys showed that economic activity in the service sector continued to expand at a healthy pace in the summer months.

Meanwhile, Powell reiterated at the annual Jackson Hole Economic Symposium that they are prepared to raise rates further, citing “substantial further ground to cover” to get back to price stability.

The SEP showed in June that the terminal rate projection for end-2023 stood at 5.6%, up from 5.1% in March. Similarly, the rate forecast for the end of 2024 rose to 4.6% from 4.3%. In case there is another upward revision to the terminal rate projection, or the end-2024 rate forecast, the US Dollar (USD) could continue to outperform its rivals. In this scenario, combined with the ECB’s dovish guidance, EUR/USD could extend its downtrend.

On the other hand, the USD could lose interest if the dot plot shows no significant revisions to interest rate projections. Markets could turn optimistic about a return to looser monetary policy next year, triggering a risk rally and putting pressure on the USD with the initial reaction. Nevertheless, it is difficult to say whether a steady uptrend could be fuelled in the pair given the worsening outlook for the European economy.

Previewing the Fed event, “The main downside risk for the USD would be if the median projection for one last hike this year is removed, and Chair Powell signals that the rate hike cycle has reached an end. But any correction should again prove short-lived,” economists at MUFG Bank said.

“We still believe that upward momentum continues to favour further USD upside in the near-term while the US economy is outperforming,” they added.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares his technical outlook for EUR/USD: “EUR/USD stays below a one-month old descending trend line on the daily chart and the Relative Strength Index (RSI) indicator stays well below 50, highlighting the bearish bias in the near term. Additionally, the 20-day Simple Moving Average (SMA) completed a bearish cross with the 200-day SMA, confirming the buildup of selling pressure.”

Eren also points out the key levels for the pair: “The Fibonacci 38.2% retracement level of the September 2022 - July 2023 uptrend forms key support level at 1.0600. A daily close below this level could attract more sellers. In this scenario, EUR/USD could face interim support at 1.0540 (static level from February) on its way to test 1.0500 (static level, psychological level). On the upside, 1.0800-1.0815 (descending trend line, 200-day SMA) aligns as first resistance. Once the pair stabilizes above this level, buyers could target 1.0860 (Fibonacci 23.6% retracement) and 1.0900 (100-day SMA).

After the FOMC decision later today, Brazil’s central bank (Banco Central do Brasil) is widely expected to deliver another 50 bps rate cut. Economists at ING analyze USD/BRL ahead of the central banks’ decisions.

BCB to deliver another 50 bps rate cut

• AUD/USD rallies to near 0.6500 as the PBoC maintains a dovish interest rate policy.
• The Fed is expected to keep interest rates unchanged at 5.25-5.50% as the US inflation has been consistently falling.
• AUD/USD rebounds after discovering buying interest near the horizontal support around 0.6364.

The AUD/USD pair delivered a rally to near the psychological resistance of 0.6500 in the late European session. The Aussie asset picked strength after the People’s Bank of China (PBOC) kept its one-year and five-year Loan Prime Rate (LPR) unchanged at 3.45% and 4.20% respectively.

The PBoC was expected to maintain a dovish interest rate policy as the Chinese economy is under pressure due to upside deflation risks. Further policy expansion would support the economy to find footing amid a bleak economic outlook.

Meanwhile, the show-stopper event for the FX domain is the interest rate decision by the Federal Reserve (Fed). The US central bank is expected to keep interest rates unchanged at 5.25-5.50%. As the US inflation has been consistently falling while maintaining economic resilience, the Fed has the opportunity to skip the policy tightening regime for the second time in its current tightening cycle.

AUD/USD rebounds after discovering buying interest near the horizontal support plotted from August 17 low around 0.6364 on a two-hour scale. The Aussie asset stabilizes above the 20-day Exponential Moving Average (EMA), which trades around 0.6340. Potential resistance is plotted from August 15 high at 0.6522.

The Relative Strength Index (RSI) (14) jumps above 60.0, which indicates that the bullish impulse has been triggered.

A decisive break above August 15 high around 0.6522 will drive the asset to August 9 high at 0.6571. Breach of the latter will drive the asset towards August 10 high at 0.6616.

On the flip side, fresh downside would appear if the Aussie asset will drop below August 17 low around 0.6360. This would expose the asset to the round-level support of 0.6300 followed by 03 November 2022 low at 0.6272.

AUD/USD two-hour chart 

The price of Brent Crude has reached $95/bbl, the highest level since November 2022. Economists at UBS analyze Oil’s outlook.

Strong fundamentals will support Brent around current levels

Loonie eases off Tuesday’s high. Economists at Scotiabank analyze USD/CAD outlook.

Rebound through 1.3495/1.3500 will drive a deeper rally towards the upper 1.35s

• The US Dollar trades in the green this morning in a safe haven flight. 
• Traders are on edge to hear from US Fed chairman Jerome Powell.
• The US Dollar Index steadies above 105 after a brief breakdown on Tuesday.

The US Dollar (USD) is facing a moment of truth with US Federal Reserve (Fed) Chairman Jerome Powell taking the stage this Wednesday. Although no hikes are expected, the stakes are very high. Not only did recent data show an uptick in economic activity with the labor market still holding strong  in the US, inflationary pressures are starting to gain momentum yet again.

As if Powell does not have a challenging enough job, the current inflationary pressure is coming from the energy market. The energy sector is a corner of the inflation basket where the Fed has no control, except by triggering a recession that would kill any additional demand for energy from a business perspective. A hawkish pause needs to be delivered as markets will want to see if the Fed is in a better position to deliver it, following the appalling performance from European Central Bank (ECB) Chairman Christine Lagarde last week. 

Daily digest: US Dollar facing moment of truth for its rally

• Thai Baht drops 1% against the Greenback in Asian trading.
• Expect to hear a needle drop in the markets during the European session and up until 18:00 GMT. The Fed will communicate first its interest rate decision, which is expected to remain unchanged at 5.5%. A joint statement will be available as well at the time of the rate communication.
• In the brief, the dot-plot (Phillips curve) will be communicated as well. Every Fed member who was a voter at this September meeting gets his chance to pencil in where rates will be in the coming months and years. This way a consensus view can be made on how high the Fed thinks it will need to go and for how long rates will remain unchanged.
• Thirty minutes later, at 18:30 GMT, Jerome Powell will take the stage and give his insights on why the Fed hiked or paused. Here will be the crucial moment if Powell is able to deliver that expected hawkish message to the markets that the Fed will not relent on controlling inflation. 
• Equities are in the red again this Wednesday as there is no escaping the negative mood stock markets are in this week. At the moment the Hang Seng Index and the Shanghai CSI 300 index are both negative on their year-to-date performance, erasing any gains for the whole of 2023.
• The CME Group FedWatch Tool shows that markets are pricing in a 99% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. Traders though will need to watch out for any hawkish rhetoric from Powell as inflation has been ticking up recently. 
• The benchmark 10-year US Treasury yield trades at 4.36% and peaked on Tuesday. Yields are ticking up again after earlier a flight to safety triggered the opposite with bond prices rising.   

US Dollar Index technical analysis: Back to square one

THe US Dollar was facing some selling pressure this week with market participants unwinding some of their US Dollar long positions and others trying to pre-position for the main event this Wednesday. The fact that the US Dollar Index (DXY) was able to stay above 105, even with a brief breakdown, points to the importance of the level. 

Expect a binary outcome with possibly the DXY making new yearly highs if Powell succeeds in delivering a hawkish message. If markets perceive the message as dovish, the summer rally of the Greenback could come to an end by going into Thursday.

The US Dollar Index (DXY) has edged up, reaching 105.41. This is just a sigh away from the 2023 high  near 105.88. Should the DXY be able to close above there for the week, expect the US Dollar to go even stronger in the medium turn.

On the downside, the 104.44 level seen on August 25 kept the Index supported on Monday, halting the DXY from selling off any further. Should the uptick that started on September 12 reverse and 104.44 gives way, a substantial downturn could take place to 103.04, where the 200-day Simple Moving Average (SMA) comes into play for support. 

EUR/USD consolidates below 1.07. Economists at Scotiabank analyze the pair’s outlook.

A clear push under 1.06 would pave the way for losses towards 1.04

Sterling is a clear underperformer on the session, although Cable losses are moderate on the day and it is trading off the earlier low. Economists at Scotiabank analyze GBP outlook.

Gains above 1.2400/1.2405 in the short run may stabilize Cable

Economists at Rabobank analyze USD outlook ahead of the Fed meeting today.

USD set to find support from a decline in risk appetite

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest performance of exports and imports in Malaysia.

Key Takeaways

• EUR/JPY climbs to multi-session tops near 158.50.
• The immediate up-barrier comes at the September high.

EUR/JPY extends the weekly recovery to the area further north of the 158.00 barrier on Wednesday.

In the meantime, the cross remains stuck within the consolidative range and the breakout of it exposes a visit to the so far monthly high of 158.65 (September 13) prior to the 2023 top at 159.76 (August 30), which precedes the key round level at 160.00.

The surpass of the latter should not see any resistance level of note until the 2008 high at 169.96 (July 23).

So far, the longer term positive outlook for the cross appears favoured while above the 200-day SMA, today at 148.90.

EUR/JPY daily chart

• Oil (WTI) takes a turn and dips, ending its eight-day winning streak.
• The US Dollar is in a wait-and-see mode ahead of the US Fed interest rate decision.
• Goldman Sachs issues call for Brent crude above $100 within 12 months.

Oil prices are bracing for the weekly numbers from the Energy Information Administration (EIA) this Wednesday. The overnight numbers from the American Petroleum Institute (API) showed a surprise drawdown, by a whopping 5.25 million barrels against the build of 1.174 million barrels last week. Supply cuts and stockpile drawdowns in the US combined with  elevated demand  are pushing both US WTI Crude and Brent prices higher.

The US Dollar (USD) is facing a moment of truth on Wednesday, with US Federal Reserve (Fed) Chairman Jerome Powell taking the stage. Although no hikes are expected, the stakes are very high. Not only did recent data show an uptick in economic activity and a strong labor market, but also inflationary pressures are starting to gain momentum partly due to increasing Oil prices..

Crude Oil (WTI) price trades at $89.22 per barrel and Brent Oil trades at $92.30 at the time of writing. 

Oil news and market movers

• Goldman Sachs has pushed up its forecast for Brent Crude to $100 per barrel. The reasons for the upward revision are the unprecedented levels of global demand while OPEC+ is tightening supply.
• Saudi Arabia is expected to gradually unwind its 1 million barrel per day cut as of Q2 of 2024.
• The EIA is due to release its weekly stockpile numbers around 14:30 GMT on Wednesday. Expectations are for a drawdown of 2.2 million barrels after the build of 3.954 million barrels last week.
• The Fed will communicate its interest rate decision at 18:00 GMT. The US central bank is expected to keep rates on hold at the 5.25%-5.50% range. A statement will be available at the time of the rate communication explaining the decision. Fed Chair Jerome Powell press conference is due at 18:30 GMT.
• Recent numbers show that the Cushing stockage in Oklahoma saw a 42% drawdown in its stockpile for this quarter. This marks the biggest decline on record. 

Oil Technical Analysis: buy on dips

Oil prices are taking a step back this Wednesday morning. Some traders are seeing some profit taking after the drawdown in the API numbers. There is likely more upside to come, so any dip in price action is expected to be bought as current market conditions and expectations remain favorable for Oil prices.

On the upside, the double top from October-November last year at $93.12 remains the level to beat. Although this looks very much in reach, markets have already priced in a lot of possible supply deficits and plenty of bullish outlooks. Should $93.12 be taken out, look for $97.11, the high of August 2022.

On the downside, a pivotal level is at $84.30 from August 10. In case this level does not hold, a substantial nosedive might occur. In such a case, Oil prices might drop to a key floor near $78.00. 

WTI US OIL daily chart

Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes USD outlook ahead of the Fed Interest Rate Decision.

The market is likely to go on pricing a 50% chance of a further hike

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

Economist at UOB Group Lee Sue Ann suggests the Bank Indonesia (BI) is likely to leave its policy rate unchanged at its meeting later in the week.

Key Takeaways

The ECB raised its key policy rate by 25 bps to a record high of 4% in September, while consensus was fairly evenly split. The EUR failed to make any notable gains, despite the rate hike. Economists at HSBC expect a weaker EUR ahead.

Lower for longer

• GBP/JPY recovers quickly from 182.40 as soft UK inflation is insufficient to force the BoE to pause the rate-tightening streak.
• UK’s headline CPI expanded at a slower pace of 0.3% despite a strong recovery in energy prices.
• BoJ’s path toward policy normalization seems achievable now as inflation has remained above 2% for the past 15 months.

The GBP/JPY pair recovered vertically after discovering buying interest near the crucial support of 182.40 in the London session. The cross rebounded strongly despite the United Kingdom inflation report for August turning out soft against expectations of sticky prices.

UK’s Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) expanded at a slower pace of 0.3%. Investors anticipated that headline inflation grew by 0.7% pace, backed by a strong rebound in energy prices due to oil rally. In July, the economic data contracted by 0.4%. On an annualized basis, the headline inflation decelerated marginally to 6.7% vs. July’s reading of 6.8% while investors saw inflation rising to 7.1%.

The core CPI that strips off volatile food and oil prices softened sharply to 6.2% against expectations and the former release of 6.8% and 6.9% respectively. This indicates that households are reluctant to spend on those goods and services whose demand can be postponed. Households’ demand for core goods eases as their real income squeezes due to higher inflationary pressures and slowing labor demand.

Softening consumer prices seems insufficient to comfort Bank of England (BoE) policymakers as the UK’s inflation is still the highest among G7 economies. Investors will keenly watch the monetary policy from the BoE, which is scheduled for Thursday. The BoE is expected to continue its policy-tightening spell straight for the 15th time and may raise interest rates by 25 basis points (bps) to 5.50%.

On the Japanese Yen front, Bank of Japan (BoJ) policymakers are working hard to get an exit from the ultra-easy monetary policy. The path towards policy normalization seems achievable now as inflation in the economy has remained above 2% for the past 15 months. For more clarity, the focus will be on the National CPI data for August, which will be published on Friday at 23:30 GMT.

GBP lurched lower in the immediate aftermath of the UK CPI data. Economists at Rabobank analyze Sterling’s outlook ahead of the Bank of England’s Interest Rate Decision on Thursday.

A less bad growth outlook for the UK could allow GBP a slight advantage vs. the EUR

Markets have already written the script for the Fed today: a hawkish hold, and an unchanged 2023 dot plot. Any FX action would depend on potential revisions to the 2024 dots, economists at ING report.

FOMC not a huge event for the Dollar

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

The Bangko Sentral np Pilipinas (BSP) is broadly predicted to keep its key rates unchanged at this week’s event, according to Lee Sue Ann, Economist at UOB Group.

Key Takeaways

EUR/SEK has almost reached the 12 mark. Antje Praefcke, FX Analyst at Commerzbank, analyzes Krona’s outlook ahead of Thursday’s Riksbank meeting.

Does the Riksbank have the guts?

• NZD/USD gathers strength for an ascending triangle pattern breakout ahead of Fed policy.
• The NZ economy is seen growing by 0.5% in Q2 vs. a contraction of 0.1%, recorded for the January-March quarter.
• The US Dollar Index remains subdued as the Fed is expected to keep interest rates unchanged at 5.25-5.50%.

The NZD/USD pair trades sideways in a narrow range of 0.5932-0.5944 in the European session. The Kiwi asset struggles for a direction as investors await the interest rate decision from the Federal Reserve (Fed), which is expected to remain unchanged.

S&P500 futures generated marginal gains in the London session. However, the overall market mood is quiet ahead of the Fed policy meeting. The US Dollar Index (DXY) remains subdued as the Fed is expected to keep interest rates unchanged at 5.25-5.50% but hawkish guidance cannot be ruled out.

Meanwhile, the New Zealand Dollar will remain in action ahead of the q2 Gross Domestic Product (GDP) data. As per the expectations, the NZ economy grew by 0.5% vs. a contraction of 0.1%, being recorded for the January-March quarter. The annual GDP is seen accelerating at a slower pace of 1.2% vs. the former reading of 2.2%.

NZD/USD attempts to deliver a breakout of the Ascending Triangle chart pattern formed on a two-hour scale. The horizontal resistance of the aforementioned chart pattern is plotted from September 6 high at 0.5942 while the upward-sloping trendline is placed from September 7 low at 0.5847.

The 20-period Exponential Moving Average (EMA) at 0.5932 is providing a cushion to the New Zealand Dollar.

Meanwhile, the Relative Strength Index (RSI) (14) attempts to shift into the bullish range of 60.00-80.00. If the RSI (14) manages to do so, a bullish momentum will get triggered.

Going forward, a decisive break above September 14 high at 0.5945 would expose the asset to August 23 high around 0.5980, followed by August 8 low around 0.6035.

On the contrary, a breakdown below September 13 low at 0.5980 would drag the major toward September 7 low at 0.5847. A slippage below the latter would expose the asset to the round-level support at 0.5800.

NZD/USD two-hour chart

• AUD/USD trades higher around 0.6460 ahead of the policy decision by the Fed.
• RBA could further tighten monetary policy if inflation persists.
• Investors will likely observe Fed Chair Jerome Powell's post-meeting press conference, seeking further cues on interest rates trajectory.

AUD/USD extends gains for the third consecutive day, trading higher around 0.6460 during the European session on Wednesday. The pair is experiencing upward support possibly due to the market caution ahead of the release of the interest rate decision by the US Federal Reserve (Fed).

The Reserve Bank of Australia (RBA) released the minutes of its September monetary policy meeting on Tuesday, providing insights into the central bank's deliberations. According to the minutes, the RBA did consider a potential 25 basis point interest rate hike during the meeting. However, in the end, the central bank chose to keep the current interest rate unchanged.

The decision to maintain the status quo was primarily influenced by the observation that recent economic data did not bring about significant alterations to the economic outlook.

The minutes from the meeting revealed that the central bank is ready to take additional steps to tighten monetary policy if inflation proves to be more persistent than initially expected. Despite this preparedness, the absence of new hawkish signals in the minutes may act as a dampening factor for the Australian Dollar (AUD) when compared to the US Dollar (USD).

People's Bank of China (PBoC) decided to keep the benchmark lending rates unchanged at their monthly fixing, in accordance with the consensus within the market. Specifically, the one-year Loan Prime Rate (LPR), which saw a 10 basis points reduction last month, remains at 3.45%, while the five-year LPR remains stable at 4.20%.

Furthermore, the Vice Chairman of China's National Development and Reform Commission (NDRC), a key state planner stated on Wednesday that "the economy faces a lot of difficulties and challenges."

The key personnel also suggested that the domestic macro-control policies implemented by the government to manage and regulate the domestic economy are effective and they will strive to achieve annual economic growth targets.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against the six other major currencies, trades lower near 105.10 at the time of writing. Traders anticipate that the Fed will maintain its current interest rates, shifting their attention to the further guidance provided by the central bank.

The markets have been factoring in the possibility of another 25 basis point rate hike by the end of the year, given the strong performance of US macroeconomic data and persistent inflationary pressures.

The United States (US) economic outlook continues to support higher US Treasury bond yields, which, in turn, are bolstering the US Dollar (USD) and creating headwinds for the AUD/USD currency pair. The US 10-year Treasury yield stands at 4.35% by the press time, below its highest level in 16 years.

The downside potential appears to be somewhat protected as investors seek new indications regarding the Fed's future rate hike plans. This quest for clarity will play a crucial role in shaping the short-term direction of the Greenback.

However, the market sentiment seems to suggest that the Fed is inclined to maintain higher policy rates for an extended period. The market's attention will primarily be on the accompanying monetary policy statement and the remarks made by Fed Chair Jerome Powell during the post-meeting press conference.

Soft UK CPI are hurting GBP, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

Rate rethink is dragging the Pound lower

Economist at UOB Group Lee Sue Ann comments on the upcoming FOMC event later on Wednesday.

Key Takeaways

• USD/JPY scales higher for the second straight day and climbs to a fresh high since November 2022.
• Intervention fears might hold back bulls from placing fresh bets ahead of the crucial FOMC decision.
• The technical setup suggests that the path of least resistance for spot prices remains to the upside.

The USD/JPY pair gains some follow-through positive traction for the second successive day on Wednesday and touches a fresh high since November 2022 during the early part of the European session. Spot prices, however, retreat a few pips in the last hour and currently trade just above the 148.00 round-figure mark, up around 0.15% for the day, as traders start repositioning for the highly-anticipated FOMC monetary policy decision.

Growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and keep the door open for at least one more rate hike by the end of this year continues to act as a tailwind for the US Dollar (USD). That said, speculations about an imminent shift in the Bank of Japan's dovish stance, along with fears that authorities will intervene to prop up the Japanese Yen (JPY), keep a lid on any further appreciating move for the USD/JPY pair.

From a technical perspective, sustained strength and acceptance above the 148.00 round-figure mark could be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for an extension of the recent upward trajectory.

Hence, some follow-through move towards testing the next relevant hurdle near the 148.80-148.85 region, en route to the 149.00 round figure, looks like a distinct possibility. the momentum could get extended further and lift the USD/JPY pair to the 149.70 area before bulls aim to reclaim the 150.00 psychological mark for the first time since October 2022.

On the flip side, any corrective decline might now find some support near the daily low, around the 147.70-147.65 area, which is closely followed by the weekly trough, around mid-147.00s. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair back towards the 147.00 round figure. Spot prices might then slide to the 146.50 horizontal support, which if broken will expose last week's swing low or sub-146.00 levels.

USD/JPY 4-hour chart

Technical levels to watch

• Gold price trades in a narrow range as the focus shifts to the Fed’s monetary policy decision.
• The US Dollar remains subdued as the Fed is expected to keep the interest rates unchanged.
• A steady policy announcement is likely to be followed by a hawkish outlook.

Gold price (XAU/USD) struggles to deliver a decisive move as investors remain cautious ahead of the interest rate decision by the Federal Reserve (Fed). An unchanged monetary policy along with a hawkish interest rate outlook is widely anticipated as the Core Consumer Price Index (CPI), which is generally considered when setting the interest rate framework, is consistently declining.

Worries about the interest rate outlook from the Fed deepen as US Treasury Secretary Janet Yellen said that growth has to slow to ensure price stability in a low unemployment scenario. The economic resilience of the US economy is good news, but it is also becoming a major roadblock for Fed policymakers in their quest to bring back inflation to the desired rate. Labor demand, wage growth, and consumer spending have remained strong, while woes in the manufacturing and the housing sector persist.

Daily Digest Market Movers: Gold price remains calm ahead of Federal Reserve meeting

• Gold price trades sideways as investors await the monetary policy decision from the Federal Reserve, which will be announced at 18:00 GMT.
• The Fed is expected to leave interest rates unchanged for the second time in the current tightening spell initiated in March 2022 as inflation is consistently softening.
• As per the CME Group Fedwatch Tool, traders undoubtedly see interest rates remaining steady at 5.25%-5.50% after the Federal Open Market Committee (FOMC) meeting on Wednesday. For the rest of the year, traders anticipate almost a 60% chance for the Fed to also keep monetary policy unchanged.
• Market participants will keenly watch for guidance on interest rates and the economic outlook. Investors remain mixed about whether the Fed will keep the doors open for further policy tightening or will provide cues about rate cuts.
• The Fed is expected to deliver hawkish guidance as the so-called ‘last mile’ of inflation, which is the remaining path towards the desired rate of 2%, seems the stickiest.
• Upside risks for the Fed remaining hawkish on the interest rate outlook are also propelled by the recent surge in gasoline prices.  Oil prices rallied almost 40% in the past four months, driven by production cuts from Saudi Arabia and Russia.
• Higher gasoline prices could elevate transportation costs, which might propel input costs at factory gates and their burden will likely be passed on to end consumers.
• In spite of higher interest rates by central bankers, the US economy has remained resilient while other G7 economies have suffered an economic slowdown.
• Investors see the US economy walking on a “golden path” as labor growth remains steady. This would mean a situation where inflation recedes without pushing the economy into a recession.
• A surprise discussion about rate cuts from Fed policymakers might shoot demand for US equities and weaken the appeal for the US Dollar.
• The US Dollar Index (DXY) remained calm before the Fed meeting, trading sideways slightly above 105.00.
• Yields offered on shorter-time US Treasuries have advanced more than longer-period bonds, a situation which historically has been an indicator of an upcoming recession.
• US Treasury Secretary Janet Yellen is confident about economic prospects, but warned on Tuesday that growth has to slow further to bring down inflation as the economy is consistently operating at full employment levels.
• US Housing Starts declined in August as higher mortgage rates forced home buyers to postpone purchases. Housing Starts contracted by 11.3% in August compared with the previous month. This is the sharpest decline in more than three years.
• While US homebuilding activity plunged heavily, demand for new buildings rose sharply by 6.9%.

Technical Analysis: Gold price remains directionless near $1,930

Gold price trades in a narrow range as investors remain on edge ahead of the Fed’s monetary policy. The precious metal shows signs of volatility compression but continues to defend the 50-day Exponential Moving Average (EMA). On a lower time frame, the yellow metal demonstrates evidence of a slowdown in the upside momentum. Gold price is expected to turn volatile after the monetary policy announcement by the Fed.

Today's main event will be the FOMC meeting. Economists at Crédit Agricole expect the Fed to pause its rate hikes but the Dollar could still benefit if the “dot plot” signals another hike.

Slowing US economy and inflation

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

Economists at Société Générale analyze USD/BRL outlook ahead of the interest rate decision from the Brazilian central bank (Banco Central do Brasil, BCB). 

Erosion of positive carry should put a brake on BRL appreciation

• The Euro reverses Tuesday’s losses vs. the US Dollar.
• Stocks in Europe kicked off Wednesday’s session with decent gains.
• EUR/USD remains bid below the 1.0700 hurdle.
• The USD Index (DXY) treads water in the low 105.00s so far.
• The Fed is expected to keep rates unchanged at its event.
• Usual weekly MBA Mortgage Applications are due later.
• ECB’s Panetta, Enria, Schnabel, Jochnick, Mc Caul, Elderson are due to speak.

The Euro (EUR) leaves behind Tuesday’s daily pullback against the US Dollar (USD), encouraging EUR/USD to regain some composure and print decent gains near the 1.0700 barrier on Wednesday.

On the other side of the equation, the Greenback trades in an inconclusive fashion in the low 105.00s when tracked by the USD Index (DXY) amidst steady cautiousness ahead of the key FOMC gathering later in the European evening or night.

On the latter event, market participants widely anticipate the Fed holding its interest rates amidst rising speculation of rate cuts at some point in Q2 2024.

In the domestic calendar, New Car Registrations in the European Union expanded 21.0% in the year to August, and Producer Prices in Germany rose 0.3% MoM in August and contracted 12.6% from a year earlier.

In the US, MBA will release its usual weekly Mortgage Applications and the EIA will publish its weekly report on US crude oil supplies.

Daily digest market movers: Euro appears bid prior to Fed

• The EUR gathers renewed buying interest vs. the USD.
• US and German yields trade marginally on the defensive so far.
• Consensus among see the Fed keeping rates unchanged on Wednesday.
• The PBoC kept its 1-Year and 5-Year Loan Prime Rate (LPR) unchanged.
• Markets continue to factor in probable rate cuts by the Fed in H1 2024.
• An impasse in the ECB’s hiking cycle appears to be gathering traction.
• UK inflation came in short of estimates in August.

Technical Analysis: Euro faces a minor up-barrier near 1.0770

EUR/USD resumes the upside amidst the broader weekly choppiness and is expected to challenge the key 1.0700 region sooner rather than later.

In case EUR/USD breaches its September low of 1.0631 (September 14), there is a possibility that it may revisit the March low of 1.0516 (March 15) ahead of the 2023 bottom of 1.0481 (January 6).

On the upside, there is a minor resistance level at the weekly high of 1.0767 (September 12) prior to the more relevant 200-day SMA at 1.0828. If the pair manages to break above this level, it could allow for the continuation of the recovery to the temporary 55-day SMA at 1.0916, ahead of the weekly top of 1.0945 (August 30). The surpass of the latter could put a potential visit to the psychological level of 1.1000 back on the radar seconded by the August peak of 1.1064 (August 10). North from here, the pair could retest the weekly high at 1.1149 (July 27), before the 2023 top at 1.1275 (July 18).

However, it is important to note that as long as the EUR/USD remains below the 200-day SMA, there is a possibility that the pair may continue to experience downward pressure.

• Silver attracts dip-buying on Wednesday and stalls the overnight pullback from a two-week top.
• The mixed technical setup warrants some caution for bullish traders ahead of the FOMC decision.
• A sustained strength beyond the 200-day SMA should pave the way for additional near-term gains.

Silver reverses modest intraday losses to the $23.00 neighbourhood and turns neutral during the early European session on Wednesday, albeit lacks follow-through. The white metal currently trades around the $23.20 area, unchanged for the day, and for now, seems to have stalled its retracement slide from a nearly two-week high touched on Tuesday.

From a technical perspective, the recent goodish rebound from the $22.30 support area – representing an ascending trend line extending from the June monthly low – and the emergence of some dip-buying on Wednesday favours bullish traders. That said, the overnight failure to find acceptance above the 38.2% Fibonacci retracement level of the August-September fall and a pullback from the vicinity of the very important 200-day Simple Moving Average (SMA) warrants some caution.

Moreover, oscillators on the daily chart – though have been recovering from lower levels – are still far from confirming a positive bias. Hence, any subsequent move up might continue to attract fresh sellers and is more likely to remain capped near the 200-day SMA, currently pegged near the $22.40-$22.50 area. A sustained strength beyond, however, might prompt a short-covering rally and lift the XAG/USD to the 100-day SMA barrier, around the $23.80 region, en route to the $24.00 mark.

The next relevant hurdle is pegged near the $24.30-$24.35 region, which if cleared decisively should pave the way for a move towards reclaiming the $25.00 psychological mark. The latter coincides with the August monthly swing high and is followed by the July peak, around the $25.25 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move for the XAG/USD.

On the flip side, the daily trough, around the $23.05 area, now seems to protect the immediate downside, ahead of the 23.6% Fibo. level. Any further decline could find decent support near the $23.30 region, or a nearly one-month low touched last Thursday. Failure to defend the said support levels will confirm a bearish breakdown and make the XAG/USD vulnerable. The white metal could then accelerate the downward trajectory towards the next relevant support near the $21.25 zone before eventually dropping to the $21.00 round-figure mark.

Silver daily chart

Technical levels to watch

EUR/USD enjoyed a short-lived rally on Tuesday. Economists at ING analyze the pair’s outlook ahead of the FOMC meeting.

EUR/USD might slip back to 1.0600 in a hawkish Fed surprise scenario

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

• USD/CHF retraces the recent gains ahead of the policy decision by the Fed.
• SECO Economic Forecasts improved the growth rate in the current year but revised lower for the year 2024.
• The odds of another rate hike by the Fed through the end of the year 2023 have been diminished.

USD/CHF snaps the previous day’s gains, trading lower around 0.8980 during the European session on Wednesday. The US Dollar (USD) could experience the upward support driven by the improved US Treasury yields. The US 10-year Treasury yield stands at 4.35% by the press time, below its highest level in 16 years.

The Economic Forecasts released by the Swiss State Secretariat for Economic Affairs showed that Gross Domestic Product (GDP) growth rate for the year 2023 is up at 1.3% from the previous 1.1% rate. While the forecasts showed the growth for the year 2024 has been reduced to 1.2% from the 1.5% previously.

Moreover, the Consumer Price Index (CPI) forecast figure reduced to 2.2% in the year 2023 from the previous reading of 2.3%. For 2024, the inflation rose to 1.9%, which was seen at 1.5% earlier.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against the six other major currencies, trades sideways near 105.20 at the time of writing. Investors anticipate that the US Federal Reserve (Fed) will keep its current interest rates in September. Moreover, as per the CME FedWatch Tool, the odds of another rate hike during the November and December meetings have been reduced.

However, the market sentiment seems to suggest that the Fed is inclined to maintain higher policy rates for an extended period, a factor that could potentially strengthen the Greenback. This perception is rooted in the resilience of the US economy, characterized by a decrease in inflationary pressures and sustained growth in the labor market.

According to a Reuters report, US Treasury Secretary Janet Yellen stated on Tuesday that, it is crucial for the US to experience a slowdown in its growth rate to a level that aligns with its potential growth rate.

Yellen also mentioned "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Fed’s "dot plots" would be significant to assess the anticipated interest rate trajectory. According to the recent Summary of Economic Projections (SEP), the median estimate from the Fed suggests that interest rates could potentially reach a peak of 5.6%.

Antje Praefcke, FX Analyst at Commerzbank, analyzes NOK outlook ahead of Thursday’s Norges Bank meeting.

Norges Bank unlikely to deviate from its path

Further decline should lose traction once USD/CNH clears the 7.3150 level, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

Considering advanced prints from CME Group for natural gas futures markets, open interest shrank for the second session in a row on Tuesday, this time by around 2.5K contracts. On the other hand, volume added around 89.2K contracts to the previous daily build.

Natural Gas remains capped by $3.00

Natural gas prices extended the weekly recovery on Tuesday, flirting at the same time with the key 200-day SMA near the $2.90 region. The uptick was on the back of shrinking open interest and is indicative that a potential knee-jerk could be in the offing in the very near term. In the meantime, the $3.00 region per MMBtu remains a key resistance area for the time being.

• USD/CAD lacks any firm direction and oscillates in a narrow band on Wednesday.
• Traders prefer to wait on the sidelines ahead of the crucial FOMC policy decision.
• Retreating Oil prices undermines the Loonie and acts as a tailwind for the major.

The USD/CAD pair struggles to capitalize on the previous day's late rebound from the 1.3380-1.3375 region, or its lowest level since August 10 and seesaws between tepid gains/minor losses through the early European session on Wednesday. Spot prices remain below a technically significant 200-day Simple Moving Average (SMA) and currently trade around mid-1.3400s, nearly unchanged for the day as traders keenly await the outcome of the highly-anticipated FOMC policy meeting.

The Federal Reserve (Fed) is widely expected to keep its benchmark interest rate unchanged at the current range of between 5.25% and 5.5%, though might still keep the door open for at least one more rate hike by the end of this year. The Fed is also anticipated to reiterate its stance that interest rates will remain higher for longer in the wake of the recent resurgence in US consumer inflation and signs of a resilient economy. Hence, the focus will remain glued to the accompanying policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference. Investors will look for cues about the future rate-hike path, which, in turn, will influence the USD price dynamics and provide a fresh directional impetus to the USD/CAD pair.

Heading into the key central bank event risk, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and assist the USD to hold just below a six-month peak set last week. Apart from this, retreating Crude Oil prices, from over a ten-month high touched on Tuesday, seem to undermine the commodity-linked Loonie and lend some support to the USD/CAD pair. The ongoing decline in Oil prices could be attributed to some profit-taking and is more likely to remain limited in the wake of concerns about a tight global supply, bolstered by extended production cuts announced by Saudi Arabia and Russia. Furthermore, hopes for a demand recovery in China – the world's top Oil importer – should act as a tailwind for the black liquid.

Adding to this, reviving bets that the Bank of Canada (BoC) could hike interest rates again in the wake of a larger-than-expected jump in domestic consumer inflation could benefit the Canadian Dollar (CAD) and cap the USD/CAD pair. In fact, Statistics Canada reported on Tuesday that the headline CPI accelerated to the 4.0% YoY rate in August as compared to consensus estimates for a rise to 3.8% from 3.3% in the previous month. This might force the BoC to raise interest rates further, warranting some caution before positioning for any meaningful recovery for the major.

Technical levels to watch

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest USD/JPY could extend further its march north in the next few weeks.

Key Quotes

A big CPI miss makes Thursday's BoE meeting an even closer call. Economists at ING analyze GBP outlook ahead of the Interest Rate Decision.

A BoE hike is in doubt after a CPI miss

• Pound Sterling faces a sell-off as inflation remains soft while investors anticipated sticky prices.
• The UK’s poor demand outlook dampens wage growth.
• Ample volatility should remain in the Pound Sterling as the BoE will announce its monetary policy on Thursday.

The Pound Sterling (GBP) attracted significant offers after the UK’s Consumer Price Index (CPI) report for August turned out soft while investors projected a persistent one due to a recovery in energy prices. The GBP/USD pair weakened as core inflation decelerated significantly, portraying a slowdown in demand for non-durable goods. UK’s Producer Price Index (PPI) for core output contracted in August, which indicates that producers lost confidence in the demand outlook as high inflation bit households’ real income.

Ample volatility would remain in the Pound Sterling as the inflation data will be followed by the interest rate decision from the Bank of England (BoE). After a soft inflation report, BoE policymakers might announce the interest rate peak sooner but should remain on course to hike interest rates for the 15th straight time on Thursday. An interest rate hike by 25 basis points (bps) will push rates to 5.50%, which will equalize policy divergence with the Federal Reserve (Fed).

Daily Digest Market Movers: Pound Sterling faces an intense sell-off on soft inflation report

• Pound Sterling dropped vertically, printing a fresh three-month low at 1.2330 on the soft inflation report for August.
• The UK’s monthly headline inflation expanded at a slower pace of 0.3%, while investors anticipated it accelerating at a pace of 0.7%. In July, the economic data contracted by 0.4%.
• The annual headline CPI softened to 6.7% vs. July’s reading of 6.8%. Investors forecasted the economic data to accelerate to 7.1%.
• UK headline inflation decelerated in July despite higher energy prices. The annual core CPI that excludes volatile food and oil prices softened significantly to 6.2% against the estimates of 6.8% and the 6.9% figure recorded in July.
• The PPI for core output contracted by 0.1% in August on a monthly basis, indicating firms reduced prices at factory gates amid a deteriorating demand environment.
• The UK’s soft inflation report is expected to allow Bank of England policymakers to announce an interest rate peak sooner, but one more interest rate increase in September, with the meeting scheduled for Thursday, cannot be ruled out.
• This would be the 15th straight interest rate hike by the BoE in which the central bank is expected to raise interest rates by 25 basis points (bps) to 5.50%.
• In spite of a softer-than-anticipated inflation report, inflation in the UK economy is highest in comparison with other G7 economies.
• OECD projected on Tuesday that Britain remains on course to have the highest inflation of leading rich economies in 2023 but sees softening to 2.9% in 2024.
• BoE Deputy Governor Sam Woods warned on Tuesday that higher interest rates have brought an uptick in impairments within the banking sector. The situation is not alarming, and authorities are monitoring it to avoid any calamity.
• Meanwhile, the consequences of higher interest rates start hitting wage growth. XpertHR reported that wage growth fell to a median 5% in the three months to the end of August from a 5.4% rise in the quarter ending in July.
• Sheila Attwood, XpertHR's senior content manager, said, “For the remainder of the year, we can expect settlements and increases in pay to slowly begin to fall."
• The US Dollar turns sideways after a V-shape recovery above the crucial resistance of 105.00 as investors remain cautious about the Fed’s monetary policy, which will be announced in the late New York session.
• The Fed is expected to keep interest rates unchanged at 5.25% to 5.50% as inflation has been softening consistently while labor growth remains steady.
• Investors will focus on the interest rate guidance for the remaining year as strong discussions about one more interest rate hike this year could elevate the risks of an economic slowdown.
• The recent rise in energy prices has exerted pressure on inflation, which could force Fed policymakers to maintain the spotlight on one more interest rate increase.

Technical Analysis: Pound Sterling refreshes three-month low near 1.2350

The Pound Sterling refreshes its three-month low after the UK inflation report for August turned out softer. The Cable is on a bearish trajectory, trading below the 50 and 200-day Exponential Moving Averages (EMAs). The asset is expected to discover interim support near the May 25 low of around 1.2300. Momentum oscillators indicate that the bearish impulse has strengthened further.

The main focus today will be on the Federal Reserve’s decision. The market is interested in what the new expectations of the FOMC members for the key rate signal for the coming quarters. Economists at Commerzbank analyze how the so-called dot plots could impact the Dollar.

Little potential for USD uptrend if the Fed moves in the direction of the market

See – Fed Preview: Forecasts from 15 major banks, a pause, but the end of rate hikes?

• EUR/GBP hovers around 0.8650 after the macro data from both economies.
• Consumer inflation eased in the UK while the German PPI revealed upbeat data.
• BoE is expected to increase interest rates by 25 basis points on Thursday.

EUR/GBP recovers from the previous day’s losses, trading near 0.8650 during the early trading hours of the European session on Wednesday. The pair gained strength after the release of downbeat inflation data from the United Kingdom (UK) and the solid figures of commodity inflation from Germany.

UK Consumer Price Index (CPI) revealed downbeat data, the year-over-year figure showed the inflation rose to 6.7% from the previous rate of 6.8%, which was expected to grow to 7.1%. CPI (MoM) improved to 0.3% compared to the 0.7% expected, which was reported a 0.4% decline previously.

While Core CPI (YoY) rose by 6.2% instead of the market expectations of 6.8%, lower than the previous growth of 6.9%.

The traders of the EUR/GBP pair anticipate that the Bank of England (BoE) will implement a 25 basis point interest rate hike during the upcoming meeting scheduled for Thursday. This potential rate increase by the BoE is seen as a proactive measure by the central bank to combat inflationary pressures and bring stability to the British economy.

However, the BoE Governor Andrew Bailey has conveyed the central bank's inclination to potentially conclude its series of interest rate hikes. This announcement, combined with apprehensions about the possibility of a recession and indications of a slowing UK labor market, could intensify the pressure on the Bank of England to pause or reconsider its ongoing cycle of interest rate increases.

On the other side, the German Producer Price Index (PPI) for the year-over-year in August reduced to the rate of 12.6% against the market consensus of 12.8%, from the previous 6% rate. While PPI (MoM) improved 0.3%, slightly higher than the 0.2% expected and swinging from the previous 1.1% decline.

The European Central Bank (ECB) raised interest rates for the 10th consecutive time in the previous week, with a 25 basis point increase, bringing its main rate to a record high level of 4%.

However, the ECB has also conveyed a clear message that the 14-month-long policy tightening cycle might have reached its peak. Furthermore, the downward revisions of CPI and GDP growth projections for the upcoming years, specifically 2024 and 2025, have reinforced the notion that additional rate hikes may not be on the immediate horizon.

Market sentiment was further influenced by the final Eurozone CPI data released on Tuesday, indicating a slowdown in inflation compared to July. This development is expected to act as a constraint on the EUR/GBP pair, as it suggests that inflationary pressures may be subsiding in the bloc.

Economists at Commerzbank have conducted an analysis of the Euro (EUR) outlook in light of the recent rate hike by the European Central Bank (ECB). Their assessment suggests that the ECB's decision to signal a halt to rate hikes for the time being aligns with market expectations.

However, this move by the ECB is not without risk, as it signifies a potentially less aggressive stance on monetary policy, which can have implications for the Euro's performance.

• GBP/JPY remains under selling pressure near 182.65 after the UK's weaker-than-expected data.
• The cross holds below the 50- and 100-hour EMAs with a downward slope on the four-hour chart.
• The immediate resistance level is seen at 183.00; 182.20 acts as an initial support level.

The GBP/JPY cross loses momentum during the early European session on Wednesday. The British Pound (GBP) faces some selling pressure following the softer-than-expected economic data from the UK. The market mood remains cautious as investors await the Bank of England (BoE) interest rate decision on Thursday. The cross currently trades near 182.65, losing 0.31% on the day. 

The latest data from the UK's Office for National Statistics reported on Wednesday revealed that the nation’s Consumer Price Index (CPI) dropped to 6.7% YoY in August from 6.8% in the previous reading, below the market consensus of 7.1%. In the same period, the Core CPI, which excludes volatile food and energy prices, fell to 6.2% from 6.9% in the previous month. Additionally, the Retail Price Index climbed 9.1% YoY in August, compared to expectations of 9.3%. In response to the data, GBP/JPY dropped more than 50 pips to below the 183.00 mark.

From the technical perspective, the GBP/JPY cross trades within the descending trend-channel since the middle of August. The cross holds below the 50- and 100-hour Exponential Moving Averages (EMAs) with a downward slope on the four-hour chart, highlighting the path of least resistance for the cross is to the downside.

The first resistance level of GBP/JPY is seen at a psycholocal mark of 183.00, followed by 183.42 (the 50-hour EMA). The additional upside filter to watch is 183.75 (the 100-hour EMA). Further north, the next stop is located near the upper boundary of the descending trend-channel at 184.55. Any meaningful follow-through buying will see the next stop at 185.25 (a high of August 29)/

On the downside, a decisive break below the lower limit of the descending trend-channel at 182.20 will see a drop to a psychological round figure at 182.00 en route to 181.38 (a low of August 8) and finally at 180.90 (a low of July 30).

Furthermore, the Relative Strength Index (RSI) is located in bearish territory below 50, highlighting that further downside cannot be ruled out.

GBP/JPY four-hour chart

The US Federal Reserve will announce its Interest Rate Decision on Wednesday, September 20 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 15 major banks. 

The Fed is widely expected to leave its rates unchanged at 5.25%-5.50% and signal a hike in November. New macro forecasts and Dot Plots will be released. Chair Powell is set to start his press conference at 18:30 GMT.

ANZ

Danske Bank

Commerzbank

Nordea

Rabobank

ING

TDS

RBC Economics

NBF

SocGen

Citi

Wells Fargo

CIBC

BBH

ABN Amro

FX option expiries for Sept 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts

• 1.0600 445m
• 1.0625-35 565m
• 1.0650 355m
• 1.0670-80 1.11b
• 1.0700-10 850m
• 1.0735-50 1.13b
• 1.0775 422m
• 1.0800 647m

- GBP/USD: GBP amounts     

• 1.2325 400m
• 1.2350 774m
• 1.2385-00 1.4b
• 1.2440 458m
• 1.2495-05 680m

- USD/JPY: USD amounts                     

• 146.25 991m
• 146.50 1.3b
• 147.00-05 835m
• 147.15-25 637m
• 147.45-50 920m
• 148.00 828m

- USD/CHF: USD amounts        

• 0.8890-00 1.13b
• 0.9000 300m

- AUD/USD: AUD amounts

• 0.6450 519m
• 0.6525 860m
• 0.6540-50 622m
• 0.6595 514m

- USD/CAD: USD amounts       

• 1.3490-00 1.0b
• 1.3545-60 1.1b

- NZD/USD: NZD amounts

• 0.5850 492m

- EURCHF: EUR amounts

• 0.9650 228m
• 0.9675 228m

Here is what you need to know on Wednesday, September 20:

Pound Sterling weakened against its major rivals early Wednesday as investors reacted to softer-than-forecast August inflation data from the UK. Later in the day, the Federal Reserve (Fed) will announce its interest rate decision and release the revised Summary of Economic Projections (SEP) - the so-called dot plot. In the early trading hours of the Asian session, market participants will pay close attention to second-quarter Gross Domestic Product data from New Zealand.

Annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), edged lower to 6.7% in August from 6.8% in July the UK's Office for National Statistics reported on Wednesday. This reading came in below the market expectation of 7.1%. Other details of the report revealed that the Core CPI inflation declined to 6.2% from 6.9% in the same period, while the Retail Price Index rose 9.1%, compared to analysts' estimate of 9.3%. With the immediate reaction to inflation figures, GBP/USD dropped to its weakest level since late May below 1.2350. Reflecting the broad selling pressure surrounding the Pound Sterling, EUR/GBP jumped to a six-week-high above 0.8650 and GBP/JPY lost more than 50 pips to drop below 183.00.

Breaking: UK CPI inflation eases to 6.7% in August vs. 7.1% expected.

The Fed is widely expected to leave its policy rate unchanged at the 5.25%-5.5% range. Revisions to the dot-plot and Fed Chair Jerome Powell's comments on the policy outlook, however, could trigger sharp fluctuations in the US Dollar (USD). The cautious market mood helped the USD stay resilient against its peers in the second half of the day, allowing the USD Index to stay in a consolidation phase slightly above 105.00.

Federal Reserve Preview: Powell to propel US Dollar higher with powerful projections, hawkish tone.

EUR/USD climbed above 1.0700 during the European trading hours on Tuesday but closed the day below that level. Early Wednesday, the pair was seen moving up and down in a tight channel.

USD/JPY registered small gains on Tuesday and continued to edge higher toward 148.00 in the Asian session on Wednesday. 

NZD/USD registered gains for the second consecutive day on Tuesday and rose to the 0.5950 area early Wednesday. New Zealand's economy is forecast to expand at an annual rate of 1.2% in the second quarter, down from 2.2% growth recorded in the first quarter.

USD/CAD dropped below 1.3400 for the first time in over a month on Tuesday after Statistics Canada reported that the annual CPI rose 4% in August, surpassing the market expectation of 3.8%. Falling crude oil prices, however, limited the Canadian Dollar's gains and the pair erased a large portion of its daily gains in the late American session. At the time of press, the pair was moving sideways near 1.3450.

Following Monday's bullish action, Gold price continued to stretch higher on Tuesday but struggled to gather bullish momentum. With the benchmark 10-year US Treasury bond yield holding comfortably above 4.3% ahead of the Fed event, XAU/USD stays in a consolidation phase slightly above $1,930.

NZD/USD is up a touch but is still below 0.60. Economists at ANZ Bank analyze Kiwi’s outlook.

Fed to continue its higher for longer narrative

Open interest in crude oil futures markets dropped for the fifth consecutive session on Tuesday, now by around 8.7K contracts according to preliminary readings from CME Group. Volume, instead, reversed the previous decline and increased markedly by nearly 267K contracts.

WTI risks extra losses

WTI prices closed with market losses after hitting new yearly peaks on Tuesday. The daily retracement was accompanied by shrinking open interest, which removes some strength from further downside. However, the strong increase in volume could also reinforce the case for further selling pressure in the very near term.

• Asian equities trade in negative territory amid the cautious tone.
• People's Bank of China (PBoC) held benchmark lending rates unchanged on Wednesday.
• Japan's top currency diplomat said the government is handling FX fluctuations with a high sense of urgency.
• Investors await the Fed meeting with expected no change to rates.

Asian stock markets trade lower on Wednesday as investors await the highly-anticipated Federal Reserve interest rate meeting.

At press time, China’s Shanghai is down 0.36% to 3,113, the Shenzhen Component Index declines 0.32% to 10,093, Hong Kong’s Hang Sang falls 0.47% to 17,912, South Korea’s Kospi drops 0.29% and Japan’s Nikkei falls 0.54%.

In China, the People's Bank of China (PBoC) maintained benchmark lending rates steady on Wednesday, as expected by the market. The one-year Loan Prime Rate (LPR), was kept at 3.45%, while the five-year LPR was unchanged at 4.20%.

Following the PBOC meeting, a Chinese central bank official said that the Chinese central bank would pay more attention to movements in the Yuan exchange rate versus a basket of currencies. The official added that China's monetary policy has considerable capacity to adapt to unforeseen challenges and changes.

US Treasury Secretary Janet Yellen said on Tuesday that she thought the Chinese government would most likely use the policy space they have to try to avoid a slowdown with major proportions while mentioning the spillovers from China’s economic difficulties to the US.

In Japan, Masato Kanda, Japan's top currency diplomat, issued a verbal intervention on Wednesday. Kanda stated that the Japanese government is handling FX fluctuations with a high sense of urgency. 

Additionally, Japan’s Balance of Trade for August came in at ¥-930.5B, worse than the expectation of ¥-659.1B. Meanwhile, Exports came in at -0.8% YoY versus -0.3% prior, better than expected at -1.7%. Imports improved to -17.8% from -13.6%, beating the estimation of -19.4%.

Moving on, market players will closely watch the Fed meeting on Wednesday in the North American session. The attention will shift to the Bank of Japan (BoJ) interest rate decision on Friday. The BOJ is largely anticipated to maintain its short-term interest rate target of -0.1% and its 10-year bond yield target of around 0%.

Narrowing inflation differential should strengthen EUR/CHF somewhat, in the opinion of economists at Erste Group Research.

Franc to strengthen strongly in the event of an escalation of geopolitical crises

• EUR/USD struggles to retrace the recent losses amid market caution ahead of Fed decision.
• MACD indicates a positive signal for potential price appreciation.
• The 1.0650 psychological level emerges as the key support, followed by the previous week’s low.

EUR/USD attempts to recover from the previous day’s losses, hovering around 1.0680 during the Asian session on Wednesday. The pair remains sideways due to the market caution ahead of the interest rate decision by the US Federal Reserve (Fed), scheduled for release later in the North American session.

The key support for the EUR/USD pair appears around the 1.0650 psychological level, followed by the previous week’s low at 1.0631.

If bearish sentiment continues to exert pressure, there is a possibility that the currency pair could approach the next support level around the significant psychological level of 1.0600.

On the upside, the EUR/USD pair could face a barrier around the 1.0700 psychological level, followed by the 12-day Exponential Moving Average (EMA) at 1.0713.

A firm break above the latter could open the doors for the pair to explore the region around the 21-day EMA at 1.0754 aligned to the 23.6% Fibonacci retracement at 1.0783 level.

The Moving Average Convergence Divergence (MACD) line remains below the centerline but lies above the signal line. This configuration indicates that the shorter-term moving average is trending higher than the longer-term moving average, which is a positive signal for potential price appreciation.

However, the selling pressure in the EUR/USD pair prevails as the 14-day Relative Strength Index (RSI) lies below the 50 level.

EUR/USD: Daily Chart

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, further gains in AUD/USD appears in store for the time being.

Key Quotes

• The index trades within a tight range just above 105.00.
• The FOMC meeting will take centre stage later in the session.
• The Fed is expected to keep rates unchanged on Wednesday.

The greenback attempts some consolidative move in the low 105.00s when measured by the USD Index (DXY) ahead of the opening bell in Euroland on Wednesday.

USD Index focused on the FOMC meeting

The index extends the side-lined trade above the 105.00 hurdle amidst scarce volatility and the usual pre-FOMC lull midweek.

That said, further range bound remains well on the cards in the next hours ahead of the key FOMC event due in the European evening.

Regarding the latter point, investors generally agree that the Federal Reserve will maintain its current interest rate. However, the focus is expected to shift to the central bank's forward guidance during Powell's press conference.

In the US data space, usual weekly Mortgage Applications tracked by MBA are also due later in the session.

What to look for around USD

The 105.00 zone so far emerges as a decent contention area for occasional bearish attempts in the index.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: MBA Mortgage Applications, Fed interest rate decision, Fed Press Conference (Wednesday) - Initial Jobless Claims, Philly Fed Index, CB Leading Index,  Existing Home Sales (Thursday) – Flash Manufacturing/Services PMIs (Friday).

Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is down 0.06% at 105.13 and the breach of 104.42 (weekly low September 11) would open the door to 103.03 (200-day SMA) and then 102.93 (weekly low August 30). On the flip side, the next up barrier aligns at 105.43 (monthly high September 14) seconded by 105.88 (2023 high March 8) and finally 106.00 (round level).

• WTI loses traction near $89.45 after reaching 10-month highs.
• The higher for longer rate narrative in the US could weigh on WTI prices.
• Voluntary oil output cut by Saudi Arabia and Russia limits the downside of oil prices.
• The highly-anticipated Federal Reserve (Fed) meeting will be in the spotlight.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $89.45 so far on Wednesday. WTI prices lose momentum after hitting the highest level since November 2022 of $93.75. WTI prices face some selling pressure due to profit-taking by traders ahead of the Federal Reserve (Fed) interest rate decision.

The Fed is widely expected to hold the interest rate unchanged in the 5.25% to 5.5% range on Wednesday's meeting. Market players will keep an eye on the Press Conference Chairman Jerome Powell. If Powell delivers hawkish comments and convinces the higher for longer interest rate narrative in the US. This might exert pressure on the WTI prices. It's worth noting that higher interest rates raise borrowing costs, which can slow the economy and diminish oil demand.

On the other hand, voluntary oil output cuts by Saudi Arabia and Russia boost WTI prices. That said, the world's two largest oil exporters announced prolonged oil output curbs until the end of 2023. Through the end of 2023, Saudi oil output will be closer to 1.3 million barrels per day. Additionally, the International Energy Agency (IEA) warned earlier this week that oil market deficits would worsen in the fourth quarter with the summer-announced oil production cuts by Saudi Arabia and Russia exacerbating the situation.

About the data, US crude oil inventories fell nearly 5.25M barrels for the week ending September 15 from the previous reading of 1.174M barrels rise, the American Petroleum Institute (API) reported on Wednesday. The market consensus expected a 2.7 million-barrel decline

Oil traders will monitor the EIA Crude Oil Stocks for the week ending September 15 due on Wednesday. The attention will shift to the Fed meeting at 18:00 GMT. These events could significantly impact the USD-denominated WTI price. Oil traders will take cues from the data and find trading opportunities around the WTI prices.

The continuation of the selling pressure could drag GBP/USD to the 1.2300 region in the near term, according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

CME Group’s flash data for gold futures markets noted traders reduced their open interest positions for the second session in a row on Tuesday, this time by around 2.5K contracts. Volume followed suit and shrank for the third consecutive day, this time by nearly 6K contracts.

Gold faces the next hurdle at $1945

Tuesday’s daily decline in gold prices was in tandem with shrinking open interest and volume, which is indicative that a deeper retracement appears not favoured for the time being. Against that, the yellow metal faces an interim resistance around the 100-day SMA near $1945 for the time being.

Extra retracement in EUR/USD appears to be losing traction for the time being, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

• GBP/USD continues with its struggle to register any recovery from a multi-month trough.
• Traders opt to wait for the UK CPI and FOMC decision, ahead of Thursday's BoE meeting.
• The setup favours bears and suggests that the path of least resistance is to the downside.

The GBP/USD pair extends the previous day's rejection slide from the vicinity of a technically significant 200-day SMA, around the 1.2425-1.2430 region, and remains on the defensive through the Asian session on Wednesday. Spot prices currently trade below the 1.2400 round-figure mark, well within the striking distance of the lowest level since early June.

The British Pound (GBP) is undermined by reduced bets for more aggressive policy tightening by the Bank of England (BoE). This, along with the underlying bullish sentiment surrounding the US Dollar (USD), continues to act as a headwind for the GBP/USD pair. Traders, however, seem reluctant to place aggressive bets and opt to wait on the sidelines ahead of the latest UK consumer inflation figures. This will be followed by the highly-anticipated FOMC policy decision, due later during the US session and the BoE meeting on Thursday.

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is already flashing slightly oversold conditions and helping limit the downside for the GBP/USD pair ahead of the key data/central bank event risks. That said, the lack of any meaningful buying and the overnight failure near the very important 200-day SMA suggests that the recent bearish trend might still be far from being over. Moreover, the recent decline along a downward-sloping channel points to a well-established downtrend and favours bearish traders.

The aforementioned technical setup suggests that the path of least resistance for the GBP/USD pair is to the downside. Hence, a subsequent fall back towards testing the May monthly swing low, around the 1.2310-1.2300 area, looks likely a distinct possibility. The said area coincides with the lower boundary of the aforementioned trend channel, which if broken decisively will set the stage for an extension of the depreciating move. Spot prices might then fall to the 1.2200 mark en route to the next relevant support near the 1.2150-1.2140 zone.

On the flip side, any recovery attempt beyond the 1.2400 mark might continue to confront stiff resistance near the 1.2430-1.2435 region, or the 200-day SMA. A sustained strength beyond might trigger a short-covering rally and allow the GBP/USD pair to reclaim the 1.2500 psychological mark. The momentum could get extended further, though might attract fresh sellers and remain capped near last week's swing high, around the 1.2545-1.2550 area. The latter should act as a pivotal point, which if cleared might shift the bias in favour of bulls.

The GBP/USD pair might then climb to challenge the ascending trend-channel hurdle, currently pegged just below the 1.2600 mark. This is followed by the 100-day SMA barrier, currently pegged around mid-1.26900s, which if cleared decisively will suggest that spot prices have formed a near-term bottom and pave the way for some meaningful appreciating move.

GBP/USD daily chart

Technical levels to watch

• USD/JPY remains flat around 147.83 as investors prefer to wait on the sidelines.
• Markets see the Federal Reserve (Fed) keeping interest rates unchanged at 5.25%-5.50% at its September meeting.
• Japan's top currency diplomat emphasized that Japanese authorities are dealing with FX moves with a high sense of urgency.
• Market players await the Fed meeting on Wednesday ahead of the Bank of Japan (BoJ) on Friday.

The USD/JPY pair trades sideways in the 147.70-147.85 region during the early European session on Wednesday. At the press time, the major pair is trading at 147.83, losing 0.01% on the day. The market turns cautious ahead of the key Federal Reserve (Fed) interest rate decision on Wednesday in the North American session.

The Federal Reserve (Fed) is widely anticipated to hold the interest rate unchanged in the 5.25% to 5.5% range. According to the CME Fedwatch Tool, the odds of keeping rates unchanged in its September meeting is 99%. However, the probability of another rate hike had been lowered in the November and December meetings, according to the CME FedWatch Tool. This, in turn, could weigh on the US Dollar (USD).

On Tuesday, US Treasury Secretary Janet Yellen said that given the economy was operating at full employment, US growth needed to slow to a rate more in line with its potential growth rate to bring inflation back to target levels, per Reuters. Apart from this, the US Census Bureau showed on Tuesday that US Building Permits rose to 1.543M in August, above expectations and previous reading, while Housing Starts fell slightly to 1.283M.

On the JPY’s front, markets turn cautious amid the fear of FX intervention. Earlier on Wednesday, Japan's top currency diplomat Masato Kanda, delivered verbal intervention comments, emphasising that Japanese authorities are dealing with FX moves with a high sense of urgency. Additionally, US Treasury Secretary Janet Yellen stated that the US would show understanding over another yen-buying intervention by Japan "depends on the details" of the situation.

On Friday, the Bank of Japan (BoJ) will announce its interest rate decision. The Bank of Japan is widely expected to keep its short-term interest rate target of -0.1% and its 10-year bond yield target of around 0%. Markets are eager to see whether Governor Kazuo Ueda would deliver any fresh signals regarding the timing of a policy move and other tweaks to its Yield Curve Control (YCC) during his post-meeting press conference.

About the data, the Japanese Ministry of Finance revealed on Wednesday that the August Balance of Trade was ¥-930.5S, worse than the expected ¥-659.1B. Meanwhile, exports were -0.8% YoY vs. -0.3% previously, which was better than the -1.7% estimated. Imports grew to -17.8% from -13.6%, above the forecast of -19.4%.

Market participants will monitor the highly-anticipated Fed meeting decision on Wednesday. While BoJ will announce its monetary policy decision on Friday. Traders will take cues from these events and find trading opportunities around the USD/JPY pair.

• USD/INR trades lower ahead of Fed policy decision.
• RBI’s intervention is expected to slow down the US Dollar’s (USD) rally.
• Elevated Crude prices exert downward pressure on the Indian Rupee (INR).

USD/INR attempts to snap the winning streak that began on September 12, trading lower around 83.20 during the Asian session on Wednesday.

However, the pair experienced upward support driven by the higher US Treasury yields. The pair could break the intraday high at 83.29, followed by the 83.50 psychological level. However, market participants expect the Reserve Bank of India (RBI) to intervene by selling US Dollar (USD), attempting to slow down the USD rally.

Additionally, elevated Crude oil prices exert downward pressure on the Indian Rupee (INR) because India relies heavily on oil imports to meet its energy needs. Moreover, the surge in oil prices is widening India’s trade deficit gap.

US Dollar Index (DXY) witnessed a fluctuating pattern during the American trading session on Tuesday. Initially, it dipped to 104.80 in response to worsening market sentiment. However, it swiftly rebounded due to the uptick in US Treasury yields, surpassing the 105.00 level once again.

DXY trades higher near 105.20 at the time of writing, reinforced by higher US Treasury bond yields. The US 10-year Treasury yield stands at 4.36% by the press time, below its highest level in 16 years.

Investors expect that the US Federal Reserve (Fed) will maintain interest rates within the existing 5.25%-5.50% range in September. Moreover, as per the CME FedWatch Tool, the odds of another rate hike during the November and December meetings have been reduced.

However, the market sentiment appears to be that the Fed will keep higher policy rates for a prolonged period could bolster the Greenback. This is attributed to the resilience of the US economy, marked by the easing of inflationary pressures and consistent labor market growth.

According to a Reuters report, US Treasury Secretary Janet Yellen mentioned on Tuesday that, as the economy is operating at full employment, it's essential for US growth to slow down to a pace that aligns with its potential growth rate in order to bring inflation back to target levels.

Yellen also said "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Traders will likely watch the "dot plots" to assess the anticipated interest rate trajectory. According to the most recent Summary of Economic Projections (SEP), the median estimate from the Fed suggests that interest rates could potentially reach a peak of 5.6%.

• USD/CNH climbs to over a one-week high during the Asian session on Wednesday.
• The uptick lacks follow-through as investors keenly await the FOMC rate decision.
• A break below the 50-day SMA is needed to support prospects for a meaningful fall.

The USD/CNH pair edges higher for the third successive day on Wednesday and climbs to over a one-week high, around the 7.3125 region during the Asian session. The technical setup, meanwhile, seems tilted in favour of bullish traders and supports prospects for an extension of the recent bounce from the 7.2595 region, or a nearly two-week low touched last Friday.

The constructive outlook is reinforced by the fact that the USD/CNH pair is holding comfortably above technically significant 50-day, 100-day and 200-day Simple Moving Averages (SMAs). That said, oscillators on the daily chart are yet to confirm a positive bias and warrant some caution before placing aggressive bullish bets ahead of the highly-anticipated FOMC monetary policy decision, due to be announced later during the US session.

In the meantime, strength beyond the 7.310 level might have set the stage for additional gains, through any subsequent move up is likely to confront resistance near the 7.3360-7.3365 region en route to the 7.3495 zone. Some follow-through buying beyond the 7.3500 level should allow the USD/CNH pair to accelerate the momentum further towards challenging a multi-year peak, around the 7.3680-7.3685 region touched on September 8.

A sustained strength beyond the latter will be seen as a fresh trigger for bulls and pave the way for an extension of the USD/CNH pair's well-established uptrend witnessed since the beginning of this year.

On the flip side, the 7.2985-7.2885 horizontal support should protect the immediate downside ahead of the 7.2800 round figure and last Friday's low, around the 7.2595 zone. This is closely followed by the 50-day SMA, currently near the 7.2435 zone, which if cleared decisively could prompt aggressive technical selling and drag the USD/CNH pair below the 7.2390 region, or the monthly low, towards testing the next relevant support near the 7.2135-7.2130 area.

USD/CNH daily chart

Technical levels to watch

• Gold price trades sideways around $1.930 amid the wait-and-see mode.
• Traders see the Federal Reserve (Fed) keeping interest rates unchanged at 5.25%-5.50% at its September meeting.
• Fed meeting will be in the spotlight ahead of the Bank of England (BoE) and Bank of Japan (BoJ) rate decision.

Gold price (XAU/USD) consolidates around $1,930 during the Asian trading hours on Wednesday. Market players prefer to wait on the sidelines ahead of the Federal Reserve (Fed) Interest Rate Decision and FOMC Press Conference. These events could trigger the volatility in the market

Meanwhile, a gauge of the value of the US dollar versus six major currencies remains flat near 105.10 after bouncing off a weekly low of 104.81. The yield on the US 10-year Treasury note has reached its highest level in 16 years, hovering at 4.365%, which could limit the downside of the US Dollar (USD).

The Federal Reserve (Fed) is set to announce its two-day monetary policy meeting on Wednesday, and interest rates are widely anticipated to remain in the 5.25% to 5.5% range. According to the CME Fedwatch Tool, the odds of keeping rates unchanged in its September meeting is 99%. However, the probability of another rate hike had been lowered in the November and December meetings, according to the CME FedWatch Tool.

The Press Conference by Fed Chairman Jerome Powell will offer some hints about the ‘dot plot’ and inflation expectations. It’s worth noting that rising interest rates raise the opportunity cost of investing in non-yielding assets, implying a negative outlook for precious metals.

Moving on, gold traders will focus on the highly-anticipated Fed interest rate decision on Wednesday at 18:00 GMT. This event could give a clear direction to gold prices. Later this week, the BoE will announce its benchmark rates on Thursday, and the BoJ monetary policy meeting is scheduled for Friday.

• GBP/JPY meets with some supply on Wednesday, albeit lacks follow-through.
• Traders look to the UK CPI for some impetus ahead of the BoE on Thursday.
• Speculations about an imminent shift in the BoJ's dovish stance to cap gains.

The GBP/JPY cross attracts some sellers near the 50-day Simple Moving Average (SMA) during the Asian session on Wednesday and erodes a part of the previous day's positive move. Spot prices, however, manage to hold above the 183.00 mark as traders seem reluctant to place aggressive bets and prefer to wait for the latest UK consumer inflation figures.

The headline UK CPI is anticipated to have accelerated to 7.1% in August from 6.8% previous, while the core reading, which excludes seasonally volatile food and energy prices, is seen edging lower to 6.8% YoY rate from 6.9% in July. A surprisingly higher print will suggest that wage pressures are still feeding through into higher prices and keep the door open for further policy tightening by the Bank of England (BoE). This, in turn, should benefit the British Pound and provide a goodish lift to the GBP/JPY cross.

Any meaningful upside, however, seems limited in the wake of diminishing odds for more aggressive policy tightening by the BoE. In fact, BoE Governor Andrew Bailey had told lawmakers earlier this month that the central bank is now "much nearer" to ending its run of interest rate increases. Furthermore, reviving recession fears, along with signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle soon. Hence, the market focus will remain glued to the crucial BoE decision on Thursday.

The attention will then shift to the highly-anticipated Bank of Japan (BoJ) meeting on Friday amid speculations for an imminent shift in the central bank's dovish stance. BoJ Governor Kazuo Ueda, in an interview with Yomiuri newspaper, had said that ending negative interest rates is among the options available if the central bank becomes confident that prices and wages will keep going up sustainably. This, in turn, suggests that the BoJ could move away from ultra-loose policy and contribute to capping gains for the GBP/JPY cross.

Technical levels to watch

• USD/CAD retraces the recent losses ahead of the Fed policy decision.
• Upbeat Canada’s CPI data reinforces the Canadian Dollar (CAD).
• Higher Crude prices exert downward pressure on the Loonie pair.

USD/CAD trades higher around 1.3450 during the Asian session on Wednesday, snapping the two-day losing streak. The pair is under pressure after Canada’s upbeat inflation data was released on Tuesday.

Canada's Consumer Price Index (CPI) for the year-over-year period in August increased to a rate of 4.0%, surpassing market expectations of 3.8% and the previous reading of 3.3%. However, the CPI (MoM) rose by 0.4%, slightly lower than the 0.6% reported previously but still exceeding market expectations of 0.2%.

BoC Consumer Price Index Core (YoY) report printed the rate of 3.3%, which exceeds the previous 3.2% rate.

Additionally, the surge in Crude oil prices is bolstering the Canadian Dollar (CAD). The concerns over global supply reduction lead to oil costs higher. WTI price trades around $89.90 at the time of writing.

The Energy Information Agency (EIA) warns that US shale production is expected to decrease further in October. According to the EIA's Drilling Productivity Report, shale production is projected to reach 9.393 million barrels per day (bpd), which is the lowest level since May of this year.

US Dollar Index (DXY) experienced a seesaw during the American session on Tuesday. The deterioration in market sentiment and higher US Treasury yields propelled the DXY to initially drop to 104.80 but then quickly rebounded above the 105.00 level once more.

DXY treads waters above 105.10 at the time of writing, reinforced by higher US Treasury bond yields. The yield on the US 10-year Treasury note stands at 4.36% by the press time, below its highest level in 16 years.

Market sentiment appears to be the US Federal Reserve (Fed) maintaining interest rates within the existing 5.25%-5.50% range in September. This stance could potentially exert pressure on the US Dollar (USD). According to the CME FedWatch Tool, the likelihood of another rate hike during the November and December meetings has been reduced.

However, the Greenback may find support in the ongoing possibility of maintaining higher policy rates over an extended period. This is attributed to the resilience of the US economy, marked by a decrease in inflationary pressures and consistent labor market growth.

According to a Reuters report, US Treasury Secretary Janet Yellen stated on Tuesday that, as the economy is operating at full employment, it's essential for US growth to slow down to a pace that aligns with its potential growth rate in order to bring inflation back to target levels.

Yellen also said "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Market participants will also closely focus on the "dot plots" to evaluate the anticipated interest rate path. According to the most recent Summary of Economic Projections (SEP), the median estimate from the Federal Reserve suggests that interest rates could potentially reach a peak of 5.6%.

• USD/MXN oscillates in a range on Wednesday, around the 61.8% Fibo. level.
• The setup favours bears and supports prospects for some meaningful downfall.
• A move beyond the 17.20-25 confluence hurdle will negate the bearish outlook.

The USD/MXN remains on the defensive through the Asian session on Wednesday and is currently placed around the 17.0760-17.0755 area, representing the 61.8% Fibonacci retracement level of the rally from the August monthly swing low. Spot prices, however, manage to hold above a two-week low touched on Monday and the 50-day Simple Moving Average (SMA), pegged near the 17.0235 region, which should act as a key pivotal point ahead of the highly-anticipated FOMC monetary policy decision.

Oscillators on the daily chart, meanwhile, have been gaining negative traction and suggest that the path of least resistance for the USD/MXN pair is to the downside. That said, it will still be prudent to wait for a sustained break below the aforementioned support before positioning for further losses. Spot prices might then turn vulnerable to weaken further below the 17.0000 psychological mark and test the 16.8885 support zone. The downward trajectory could get extended further towards the multi-year trough, near the 16.6945 region touched in August.

On the flip side, the overnight swing high, around the 17.1420-17.1425 area now seems to act as an immediate hurdle ahead of the weekly top, near the 17.1825 region touched on Monday. Any subsequent move up is more likely to confront stiff resistance and remain capped near the 17.2060-17.2280 confluence, comprising the 50% Fibo. level and the 100-day SMA. Some follow-through buying, however, should lift the USD/MXN pair to the 38.2% Fibo. level, around the 17.3300 region en route to the 23.6% Fibo. barrier near the 17.4775 area.

The next relevant hurdle is pegged near the multi-month top, around the 17.7090-17.7095 zone, which if cleared decisively will be seen as a fresh trigger for bullish traders and set the stage for a further near-term appreciating move for the USD/MXN pair.

USD/MXN daily chart

Technical levels to watch

Speaking at a press conference following the People’s Bank of China’s (PBOC) interest rate decision on Wednesday, the central bank official commented on the Yuan exchange rate value.

Key quotes

Market reaction

At the time of writing, USD/CNY is testing intraday highs near 7.2970, erasing early losses to trade neutral on the day.

Vice Chairman of China’s state planner, the National Development and Reform Commission (NDRC), said on Wednesday, “the economy faces a lot of difficulties and challenges.”

Additional quotes

Related reads

• AUD/USD consolidates near two-week high, around mid-0.6400s ahead of FOMC decision
• PBoC keeps Loan Prime Rates (LPR) unchanged

• The Office for National Statistics will release the UK inflation report on Wednesday.
• Core annual inflation is seen a tad lower at 6.8%, headline figure likely to increase.
• The UK CPI data could offer fresh cues on the BoE’s policy outlook and rock the Pound Sterling.

The United Kingdom’s Office for National Statistics (ONS) will release the high-impact Consumer Price Index (CPI) data on Wednesday. The British inflation report is set to have a significant influence on the Bank of England’s (BoE) path forward on interest rates, eventually impacting the Pound Sterling valuations.

The BoE is expected to follow the footsteps of the European Central Bank (ECB) and signal no more rate hikes this year after delivering a 25 basis points (bps) rate increase on Thursday. Markets are pricing a 75% chance of such a hike. Mounting stagflation risks and cooling labor market conditions could lead the BoE to convey a dovish message.

The United Kingdom’s ILO Unemployment Rate climbed to 4.3% in the quarter through July from the 4.2% seen during the three months to June. The economy saw an employment loss of 207K in July, having shredded 66K jobs in June. The Average Earnings excluding bonuses rose 7.8% 3M YoY in July as expected, but at a joint-record pace.

The August UK inflation report could help markets reprice BoE policy expectations beyond the September meeting.

What to expect in the next UK inflation report?

The headline annual UK Consumer Price Index is set to rise 7.1% in August, compared to a 6.8% growth reported in July. The Core CPI is expected to rise 6.8% YoY in August, slightly down from July’s 6.9% increase. On a monthly basis, Britain’s CPI is seen rebounding to 0.7% in the eighth month of the year, having declined by 0.4% in July.

The surge in Oil prices and an increase in the alcohol tax are likely to contribute to the renewed uptick in headline inflation. “I agree with the MPC that the risks to inflation around the August forecast are to the upside,” BoE Deputy Governor appointee, Sarah Breeden, said last week.

Previewing the event, analysts at BBH noted: “August CPI will be reported Wednesday. Headline is expected at 7.1% y/y vs. 6.8% in July, core is expected at 6.8% y/y vs. 6.9% in July, and CPIH is expected at 6.6% y/y vs. 6.4% in July.  If so, this would be the first acceleration in the headline since February and would move it further above the 2% target.”

“WIRP [World Interest Rate Probability, a gauge by Bloomberg] suggests odds of a 25 bp hike are around 85%. For a time over the summer, a 50 bp hike was largely priced in and so the change is noteworthy. Odds of a second 25 bp hike are around 15% for November 2 and then rise to top out near 55% for February 1. However, the first cut is still not priced in until H2 2024,” the analysts added.

When will the UK Consumer Price Index report be released and how could it affect GBP/USD?

The UK CPI data will be published at 06:00 GMT on Wednesday. Progressing toward the all-important inflation data from the United Kingdom, the Pound Sterling (GBP) is struggling around a three-month low of 1.2379 against the US Dollar set on Friday. Expectations of a US Federal Reserve (Fed) rate hike pause this week are helping GBP/USD find a floor.

A hotter-than-expected headline and core inflation data could reinforce expectations of one more BoE rate hike by the year-end, providing extra legs to the ongoing recovery in the Pound Sterling.  In such a case, GBP/USD could build onto its rebound toward 1.2500. Conversely, should the core figure come in softer than the market consensus, GBP/USD is likely to see a fresh downswing toward the 1.2308 critical support.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The 14-day Relative Strength Index (RSI) is listless just above the oversold territory while GBP/USD continues to extend its consolidative mode just below the 200-day Simple Moving Average (DMA). These technical indicators suggest that the downside potential remains intact in the pair. 

Dhwani also outlines important technical levels to trade the GBP/USD pair: “The major needs acceptance above the 200 DMA at 1.2433 to initiate a meaningful recovery from five-month lows. The next powerful resistance is seen for the Pound Sterling is seen at the 1.2500 level. On the downside, sellers could target 1.2350 if the recent range is broken to the downside. Further south, GBP/USD will challenge the May low of 1.2308.”

• AUD/USD remains confined in a familiar trading band through the Asian session on Wednesday.
• Traders keenly await the highly-anticipated FOMC decision before placing fresh directional bets.
• Speculations that the RBA is done hiking rates to keep a lid on any meaningful appreciating move.

The AUD/USD pair struggles to gain any meaningful traction during the Asian session on Wednesday and remains below a two-week high, around the 0.6470-0.6475 area touched the previous day. Spot prices oscillates in a familiar band and currently hover around mid-0.6400s, awaiting the outcome of the highly-anticipated FOMC policy meeting before the next leg of a directional move.

Traders expect the Federal Reserve (Fed) to keep rates on hold and hence, the focus will be on the forward guidance. The markets have been pricing in the possibility of more more 25 bps lift-off by the end of this year in the wake of resilient US macro data and still-sticky inflation. The outlook remains supportive of elevated US Treasury bond yields, which seem to underpin the US Dollar (USD) and act as a headwind for the AUD/USD pair.

The downside, however, seems cushioned as investors look for fresh cues about the Fed's future rate-hike path, which will help in determining the near-term trajectory for the buck. Hence, the focus will remain on the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference. In the meantime, traders opt to wait on the sidelines, leading to a subdued price action around the AUD/USD pair.

Spot prices, meanwhile, move little in reaction to the People's Bank of China's (PBoC) decision to leave benchmark lending rates unchanged at a monthly fixing, matching market expectations. Meanwhile, speculations that the Reserve Bank of Australia (RBA) might have already ended its rate-hiking cycle warrant some caution before positioning for an extension of the AUD/USD pair's recent recovery from the 0.6355 area, or the YTD low touched earlier this month.

Techincal levels to watch

• AUD/JPY loses traction near 95.35 following the People's Bank of China (PBoC) rate decision.
• The cross holds above the 50- and 100-hour EMAs; Relative Strength Index (RSI) holds above 50 in the bullish territory.
• The immediate resistance level emerges at 95.60; the key support level is seen at 94.90.

The AUD/JPY cross edges lower to 95.35 during the Asian session on Wednesday. The cross faces some follow-through selling after Japan's top currency diplomat Masato Kanda came out with verbal intervention remarks early Wednesday.

Kanda stated that the Japanese authorities will deal appropriately with FX moves and will closely watch them with a high sense of urgency. This, in turn, might drag the AUD/JPY lower and act as a headwind for the cross. Market players await the Bank of Japan (BoJ) interest rate decision on Friday for a clear direction for the pair.

The People's Bank of China (PBoC) maintained benchmark lending rates steady on Wednesday, as expected by the market. The one-year Loan Prime Rate (LPR), was kept at 3.45%, while the five-year LPR was unchanged at 4.20%. Meanwhile, any signs from the Chinese authorities about the additional stimulus plans to deal with the property crisis might lift the China-proxy Australian dollar (AUD) and limit the downside of the AUD/JPY.

According to the four-hour chart, the path of least resistance for the AUD/JPY is to the upside as the cross holds above the 50- and 100-hour Exponential Moving Averages (EMAs). Meanwhile, the Relative Strength Index (RSI) holds above 50 in the bullish territory, which supports the buyers for now.

Looking at the upside, the immediate resistance level for AUD/JPY emerges near the upper boundary of the Bollinger Band at 95.60. A break above the latter will see a rally to 95.78 (a high of July 21) en route to a high of July 4 at 96.85. The next barrier to watch is a Year-To-Date (YTD) high of 97.62. and finally at 98.00 (a psychological round mark).

On the downside, the cross will meet the key support level near the confluence of the lower limit of the Bollinger Band and the 50-day EMA at 94.90. A breach of the latter will see a drop to 94.60 (the 100-hour EMA), followed by a psychological round figure at 94.00.

AUD/JPY four-hour chart

• NZD/USD extends gains around 0.5940 ahead of the Fed decision.
• Improved US bond yields contribute support for the US Dollar (USD).
• Fed is expected to maintain its current interest rates in September.
• PBoC remained the benchmark one-year LPR at 3.45%.

NZD/USD extends its gains on the third successive day, trading higher around 0.5940 during the Asian session on Wednesday. However, the pair faced pressure earlier in the day ahead of the US Federal Reserve’s (Fed) decision.

US Dollar Index (DXY) surged during the American session on Tuesday as market sentiment deteriorated and US Treasury yields climbed higher. The DXY rebounded to 104.80, surpassing the 105.00 level.

DXY holds ground around 105.10 at the time of writing, supported by elevated US Treasury bond yields. The yield on the US 10-year Treasury note stands at 4.36% by the press time, below its highest level in 16 years, which presents a challenge for the Kiwi pair.

Market sentiment is that the Fed to keep interest rates at the current 5.25%-5.50% range in September, which could put pressure on the Greenback. According to the CME FedWatch Tool, the probability of another rate hike had been lowered in the November and December meetings.

However, the USD could find support as the possibility of keeping the policy rates higher for an extended period persists. This is due to the resilience of the US economy, characterized by easing inflationary pressures and stable labor growth.

Market participants will closely focus on the 'dot plots' to assess the expected interest rate trajectory. According to the recent Summary of Economic Projections (SEP), the Fed's median estimate indicates that rates could reach a peak of 5.6%.

According to a Reuters report, US Treasury Secretary Janet Yellen stated on Tuesday that, as the economy is operating at full employment, it's essential for US growth to slow down to a pace that aligns with its potential growth rate in order to bring inflation back to target levels.

Yellen also said "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

On the other side, New Zealand’s Current Account data revealed the figure of $-4.208B for the second quarter, compared to the market consensus of $-4.800B and the previous figure of $-5.215B. While the Current Account - GDP Ratio for the same quarter declined by 7.5% against the previous 8.5% decline.

The People's Bank of China (PBoC) maintained the benchmark lending rates unchanged at their monthly fixing on Wednesday, in line with market expectations. The one-year Loan Prime Rate (LPR), which had been reduced by 10 basis points last month, remained at 3.45%, while the five-year LPR stayed steady at 4.20%.

Traders will closely monitor the US Federal Reserve's meeting decision scheduled for later on Wednesday during the North American session.

• EUR/USD attracts some dip-buying on Wednesday, though lacks bullish conviction.
• Bets that the ECB is done hiking rates act as a headwind for the Euro and cap gains.
• Traders also seem reluctant and now look to the FOMC decision for a fresh impetus.

The EUR/USD pair ticks higher during the Asian session on Wednesday and reverses a part of the previous day's retracement slide from the 1.0715-1.0720 region. Spot prices, however, remain below the 1.0700 round figure and well within the striking distance of a six-month low touched last Friday as traders keenly await the outcome of the highly-anticipated FOMC policy meeting before placing fresh directional bets.

The Federal Reserve (Fed) is scheduled to announce its decision later during the US session and is widely expected to maintain the status quo, leaving the benchmark federal funds rate at the current range of between 5.25% and 5.5%. Investors, however, seem convinced that the US central bank will stick to its hawkish stance and keep the door open for one more 25 bps lift-off by the end of this year in the wake of still-sticky inflation. Moreover, the incoming macro data indicated that the US economy remains resilient, which should allow the Fed to keep interest rates higher for longer.

Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized closely for fresh cues about the future rate-hike path. This, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the EUR/USD pair. Heading into the key central bank event risk, the USD bulls seem reluctant to place aggressive bets, which, in turn, is seen acting as a headwind for the major, though the European Central Bank's (ECB) dovish rate decision last week acts as a headwind.

The ECB opted to hike rates for the 10th straight time, by 25 bps, taking its main rate to an all-time high level of 4%. The ECB, however, sent a clear message that the 14-month-long policy tightening cycle could have reached its peak already. Furthermore, the downgrading of CPI and GDP growth forecasts for the coming years – 2024 and 2025 – reaffirmed expectations that further hikes may be off the table for now. The bets were further lifted by the final Eurozone CPI print released on Tuesday, showing that inflation has toned down as compared to July, which should cap the EUR/USD pair.

Technical levels to watch

On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.1732, compared with the previous day's fix of 7.1733 and 7.2926 estimated.

The People's Bank of China (PBoC), as was expected, decided to leave the 1-year and 5-year Loan Prime Rates (LPR) unchanged at 3.45% and 4.20% respectively. The 1-year rate was cut last month by 10 bps from 3.55% prior.

• USD/CHF remains confined in a range around 0.8976 as investors turn to a cautious mood.
• The Federal Reserve (Fed) is widely expected to hold interest rate unchanged on Wednesday.
• The Swiss National Bank (SNB) is expected to raise additional interest rates from 1.75% to 2% on Thursday.
• Traders will closely watch The Fed, SNB monetary policy meeting this week.

The USD/CHF pair consolidates in a 0.8970-0.8980 range during the early Asian session on Wednesday. Meanwhile, the US Dollar Index (DXY), a measure of the value of USD against six other major currencies, holds above 105.10 after retracing from a six-month high of 105.40 last week. Markets turn cautious ahead of the Federal Reserve (Fed) interest rate decision on Wednesday. The pair currently trades near 0.8976, down 0.01% on the day.

The Federal Reserve (Fed) is set to announce its two-day monetary policy meeting on Wednesday, and interest rates are widely anticipated to remain in the 5.25% to 5.5% range. According to the CME Fedwatch Tool, the odds of keeping rates unchanged at 99%. However, markets remain cautious of the Fed's outlook, owing to a recent uptick in inflation data and the resiliency of the US economy, which could pave the way to additional rate hikes.

About the data, the US housing industry showed mixed results in August. The US Census Bureau showed on Tuesday that US Building Permits rose to 1.543M in August, above expectations and previous reading, while Housing Starts fell slightly to 1.283M.

Data released by the Swiss Federal Customs Administration on Tuesday revealed that the nation’s trade surplus rose to 4,054M in August from 3,132M in the previous month. Meanwhile, Exports improved by 20,735M in August from 20,713M prior. Imports grew 17,603M from 17,584M in the previous reading.

The Swiss National Bank (SNB) is expected to raise additional interest rates by 25 basis points (bps) from 1.75% to 2% on Thursday. The Swiss central bank is expected to keep its restrictive stance in place to ensure price stability as the latest nation’s inflation showed a 1.6% YoY increase, which is still below the 2% target. However, if SNB offers hints about its last hike, the monetary policy divergences between the US and Switzerland might continue to drive the pair higher.

Moving on, market participants will closely monitor the Fed interest rate decision on Wednesday ahead of the SNB meeting on Thursday. These events could trigger the volatility in the market and give a clear direction for the USD/CHF pair.

• Gold price trades sideways around $1,930 as the Fed’s decision looms.
• US Dollar (USD) holds ground above 105.00 on elevated US Treasury yields.
• Fed is expected to maintain interest rates at the current 5.25%-5.50% range in September.

Gold price consolidates below a two-week high, trading around $1,930 during the early hours of the Asian session on Wednesday. The price of yellow metal is under pressure due to improved US Treasury yields ahead of the US Federal Reserve’s (Fed) decision.

US Dollar Index (DXY) continues to hold steady around 105.10, supported by elevated US Treasury bond yields. The yield on the US 10-year Treasury note is at 4.36% by the press time, marking its highest level in 16 years, which poses a challenge to Gold prices.

Fed is expected to keep rates at the current 5.25%-5.50% range in September but to keep them higher for a prolonged period following the recent data, which showed that inflation is resilient.

According to the CME FedWatch Tool, the probability of another rate hike had been lowered in the November and December meetings.

While the Fed's decision is significant, market participants will closely focus on the 'dot plots' to assess the expected interest rate trajectory. In the most recent Summary of Economic Projections (SEP), the Fed's median estimates indicate that rates could reach a peak of 5.6%.

According to a report from Reuters, US Treasury Secretary Janet Yellen commented on Tuesday that, given the economy was operating at full employment, it was necessary for US growth to moderate to a rate more aligned with its potential growth rate in order to bring inflation back to target levels.

Yellen also said "I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions. There may be spillovers from China’s economic difficulties to the US."

Traders will closely monitor the US Federal Reserve's meeting decision on Wednesday later in the North American session.

• GBP/USD remains confined in a familiar trading band near a multi-month low.
• Expectations that the BoE is nearing the end of its rate-hiking cycle cap gains.
• Traders now look to the UK CPI for some impetus ahead of the FOMC decision.

The GBP/USD pair continues with its struggle to register any meaningful recovery and extends its consolidative price moves for the third successive day on Wednesday. Spot prices trade below the 1.2400 mark during the Asian session and remain well within the striking distance of its lowest level since early June touched on Monday.

Traders now seem reluctant and opt to wait on the sidelines ahead of this week's key data/central bank event risks, starting with the release of the latest UK consumer inflation figures later today. The headline UK CPI is anticipated to have accelerated to 7.1% in August from 6.8% previous, while the core reading, which excludes seasonally volatile food and energy prices, is seen edging lower to 6.8% YoY rate from 6.9% in July. A surprisingly higher print will suggest that wage pressures are still feeding through into higher prices, which, in turn, should benefit the British Pound and provide a goodish lift to the GBP/USD pair.

The immediate market reaction, however, is more likely to remain limited as the focus remains glued to the Bank of England (BoE) monetary policy meeting on Thursday, against the backdrop of diminishing odds for more aggressive policy tightening. In fact, BoE Governor Andrew Bailey had told lawmakers earlier this month that the central bank is now "much nearer" to ending its run of interest rate increases. Furthermore, reviving recession fears, along with signs that the UK labour market is cooling, might put pressure on the BoE to pause its rate-hiking cycle soon, which should cap the upside for the GBP/USD pair.

In the meantime, investors on Wednesday will also look to the highly-anticipated FOMC policy decision, due to be announced later during the US session. The Federal Reserve (Fed) is expected to keep interest rates unchanged at the end of a two-day meeting, though the markets have been pricing in the possibility of one more 25 bps lift-off by the end of this year. Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be scrutinized for cues about the future rate-hike path, which will influence the USD and provide a fresh impetus to the GBP/USD pair.

Technical levels to watch

According to Reuters, US Treasury Secretary Janet Yellen stated on Tuesday that given the economy was operating at full employment, US growth needed to slow to a rate more in line with its potential growth rate to bring inflation back to target levels.

Key quotes

Market reaction

These comments do not seem to have a major influence on risk mood. As of writing, the US Dollar Index (DXY) is trading at 105.13, down 0.01% on the day.

• USD/JPY oscillates in a narrow trading band near 147.75 amid the cautious mood.
• Japanese Balance of Trade for August came in at ¥-930.5B, worse than the expectation of ¥-659.1B.
• The Federal Reserve (Fed) is widely expected to hold the interest rates in the 5.25% to 5.5% range.
• Traders will closely monitor the Fed interest rate decision ahead of the Bank of Japan (BoJ) meeting.

The USD/JPY pair remains confined in a range during the early Asian session on Wednesday. Traders prefer to wait on the sidelines ahead of the Federal Reserve (Fed) interest rate decision on Wednesday, which Fed is expected to keep rates unchanged at the 5.25%-5.50% range. The pair currently trades near 147.75, down 0.08% on the day.

The latest data from Japan’s Ministry of Finance showed on Wednesday that the nation’s Balance of Trade for August came in at ¥-930.5B, worse than the expectation of ¥-659.1 B. Meanwhile, Exports came in at -0.8% YoY versus -0.3% prior, better than expected at -1.7%. Imports improved to -17.8% from -13.6%, beating the estimation of -19.4%.

Early Wednesday, Japan's top currency diplomat Masato Kanda came out with verbal intervention remarks. Kanda stated that Japanese authorities are dealing appropriately with FX moves with a high sense of urgency.

Furthermore, the Bank of Japan (BoJ) will announce an interest rate decision on Friday. The BOJ is largely anticipated to maintain its short-term interest rate target of -0.1% and its 10-year bond yield target of around 0%. Markets are waiting to see whether Governor Kazuo Ueda would provide any new signals about the timing of a policy move and additional tweaking to its Yield Curve Control (YCC) at his press conference after the meeting.

Across the pond, the Federal Reserve (Fed) is scheduled to announce the two-day monetary policy meeting on Wednesday and is widely expected to hold the interest rates in the 5.25% to 5.5% range. This, in turn, might exert some selling pressure on the Greenback (USD) and act as a headwind for the USD/JPY pair. About the data, the US housing industry showed mixed results in August. The US Census Bureau revealed on Tuesday that US Housing Starts fell 11.3% while building permits surged 6.9%.

Moving on, traders will keep an eye on the Fed meeting decision on Wednesday at 18:00 GMT. On Friday, BoJ will announce its monetary policy decision. These events could trigger the volatility in the market and could give a clear direction to the USD/JPY pair.