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As investors avoid taking up significant positions before the Fed announces its monetary policy decisions, the EUR/USD pair gained momentum midweek and stabilised above 1.1070. On Tuesday, the pair fell to 1.1020, its lowest point in two weeks, but recovered in the early American session.
The US Dollar lost appeal in the second half of the day as a result of the rising risk sentiment, which helped the EUR/USD pair change course. Following its meeting in July, the Fed is anticipated to increase its policy rate by 25 basis points, with market positioning indicating a potential downside for the US currency.
On Wednesday, the Fed’s two-day policy meeting will come to an end. It is largely anticipated that the Fed will increase the policy rate by 25 basis points, to a range of 5.25 to 5.5%. Investors will want to hear if the Fed still thinks it is appropriate to raise the interest rate by another 25 basis points either in November or December. The interest-rate decision has already been priced in. Inflation numbers for June that were weaker than expected rekindled hopes that the Fed would hit its target rate with a rate increase in July.
Investors have not, however, made a firm commitment to the tightening cycle’s end. The possibility that the Fed would increase the key rate at least one more time by December is 33%, according to the markets.
A confirmation of one more rate increase before the year is over could be interpreted as hawkish and help the USD. The USD might weaken and make way for a prolonged EUR/USD recovery if the Fed or FOMC Chairman Jerome Powell adopts a more upbeat tone about the inflation forecast.
On Tuesday, the EUR/USD fell under 1.1050, but it was able to rebound above it, establishing that level as a strong support. Additional sellers might enter the picture, setting short-term targets around 1.1000, 1.0980, and 1.0950 if EUR/USD breaks through 1.1050 and begins to use that level as resistance.
