The US Federal Reserve will conclude its two-day policy meeting and announce the interest rate decision on Wednesday. For the first time in a very long time, markets are unsure about what the Fed will do and they will finally see whether policymakers will opt for a 25 or a 50 basis points (bps) rate cut.
The US central bank will also release the revised Summary of Economic Projections (SEP), also known as the dot-plot, and Chairman Jerome Powell will respond to questions during a press conference.
Following a bearish start to the week, the DXY Dollar Index recovered and closed in positive territory on Tuesday, supported by the upbeat August Retail Sales data and the cautious market mood.
Early Wednesday, the index held steady slightly below 101.00.
In the meantime, US stock index futures were trading marginally higher after Wall Street’s main indexes closed virtually unchanged on Tuesday and the benchmark 10-year US Treasury bond yield fluctuated at around 3.65%.
According to the CME FedWatch Tool, markets currently see a 61% probability of the Fed reducing the policy rate by 50 bps to the range of 4.75-5.00%.
The UK’s Office for National Statistics reported early Wednesday that the annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 2.2% in August, matching the market expectation.
On a monthly basis, the CPI rose 0.3% following the 0.2% decline recorded in July. The core CPI, which excludes volatile food and energy prices, rose 3.6% on a yearly basis, up from 3.3% in July.
GBPUSD gained traction following these data and advanced toward 1.3200.
EURUSD closed modestly lower on Tuesday, but managed to stabilise above 1.1100. Eurostat will publish revisions to August Harmonised Index of Consumer Prices data later in the session.
USDJPY gathered bullish momentum and snapped a five-day losing streak on Tuesday. The pair remains on the back foot in the European morning on Wednesday and is trading below 142.00.
Gold reversed its direction after setting a new record-high on Monday and lost 0.5% on Tuesday. XAUUSD is relatively quiet early Wednesday and fluctuating near $2,570.
(Source: OANDA)
