The latest developments suggest the selling pressure surrounding the greenback could ease somehow after the meeting
Despite Congress and the White House remain at odds over the details of a fiscal stimulus, the latest report of progress towards a deal lifted investor sentiment, adding to the downside pressure surrounding the greenback overnight. As the chances of striking a deal have increased, the upcoming Fed meeting could bring a less dovish tone than previously expected. Besides, as vaccines roll out, the outlook for economic recovery in 2021 is getting brighter, adding to the constructive picture down the road.
On the other hand, rising Treasury yields, low employment figures, the ongoing pandemic, and the persisting recession risks should prompt a cautious tone from the Federal Reserve. In other words, it won’t be easy for the central bank to pick a proper tone and language amid mixed signals. Anyway, the latest developments suggest the selling pressure surrounding the greenback could ease somehow after the meeting. As for the potential actions from the bank, the Fed is widely expected to leave interest rates unchanged while extending the average maturity of its asset purchases. If the US central bank refrains from making any changes, it would send the greenback higher across the board.
In a dollar-negative scenario, EURUSD will likely challenge the 1.2200 barrier and thus refresh long-term highs, staying within a strong uptrend amid broad-based dollar weakness. The common currency could also receive the additional boost from the Brexit front if the EU-UK negotiations lead to a long-awaited trade deal, boosting the sterling as well.
Apart from the Fed meeting and Powell’s subsequent press-conference, important economic data could affect dynamics in USD pairs, with the major countries revealing their services and manufacturing PMIs that could help to assess the state of the global economy in the fourth quarter.