Earlier this month, Powell failed to hint at any impending reaction from the bank to rising long-term rates
The dollar remains steady ahead of the crucial FOMC decision due later today. Most currency pairs little changed during the European hours on Wednesday, as investors await the Federal Reserve’s response to the recent rout in the debt markets that sent US 10-year Treasury yields to more than one-year highs.
Ahead of the major event, investors are guessing whether the central bank will step-in to cap the recent rally in long-term bond yields and address rising inflation expectations. Earlier this month, Powell failed to hint at any impending reaction from the bank to rising long-term rates. So, it looks unlikely that the Fed will send a clear signal to stop the process at this stage.
Similarly, no changes are expected to the Fed’s monetary policy settings. The Fed Funds rate dot plot will continue to signal that rate hikes will only begin after 2023. Should the dot plot be revised higher, however, the greenback would rally across the board, but an extended move higher for the USD seems rather unlikely.
EURUSD has been losing ground for the fourth day in a row on Wednesday, flirting with the 1.1880 local support, a break below which would pave the way towards multi-week lows seen around 1.1835 last week. The current dynamics confirms that recent strength had been corrective, and deeper losses could be expected in the coming days, especially if the Fed gives a fresh bullish impetus to the greenback.
Elsewhere, USDJPY retains a bullish tone despite the overbought conditions, suggesting the pair could see fresh highs before correcting lower. The prices are holding above the 109.00 figure, but refrain from a decisive break above recent highs in the 109.35 area that represents the key target for dollar bulls for the time being. If the pair manages to overcome this barrier, the market focus would shift towards 110.00.
