The USD is little changed as markets grow increasingly comfortable with developments in the Middle East. At the same time, attention is shifting toward a heavy slate of central bank decisions, highlighted by today’s Fed announcement.
As North American traders enter, the dollar is mixed against the major currency pairs, with price action—rather than direction—telling the story.
EURUSD is probing a key technical zone. The pair has attempted to extend above its 200-hour moving average at 1.1543 and is testing a swing area between 1.1542 and 1.1555. Sellers are leaning on the first test, with price oscillating around the moving average as traders decide whether this break can stick or fail.
USDJPY moved lower during the Asian and early European sessions, testing both the rising 200-hour moving average and an upward-sloping channel trendline. Although the price briefly dipped below both levels, it quickly rebounded. A sustained move below the 200-hour MA at 158.70 would be needed to tilt the bias more bearish. The pair currently trades near 159.02, with the next upside target at the flattening 100-hour MA at 159.19. Earlier this week, that level acted as support before breaking—making it a key pivot. A move back above would shift the bias more bullish.
GBPUSD remains range-bound, trading on either side of its 200-hour moving average at 1.3354. The lack of direction reflects broader market indecision. A push higher would target the 100-day moving average at 1.3395, followed by a retracement level near 1.3407. On the downside, a break below 1.3340 would open the door toward the 100-hour MA near 1.3314.
On the data front, US PPI will be released at 8:30 AM ET, with expectations of +0.3% month-over-month and +2.9% year-over-year. Core PPI (ex-food and energy) is also expected at +0.3% and +3.7% respectively.
The main event, however, is the FOMC decision at 2 PM ET. The Fed is widely expected to hold rates steady, but the backdrop is increasingly complex. Rising oil prices tied to the US-Iran conflict have added a new layer of inflation uncertainty, forcing markets to reassess the timing of future rate cuts.
While consensus is for a hold, the debate centers on whether the energy-driven inflation impulse is temporary or something more persistent. Statement changes and the dot plot are expected to show only modest adjustments, though inflation projections are likely to be revised higher.
Views on the rate path remain divided. Citi is the most dovish, looking for cuts as early as April amid concerns over slowing job growth. BofA expects easing in June and July, while Goldman Sachs sees cuts later in September and December. JP Morgan, on the other hand, does not expect any cuts in 2026.
Looking back at the Fed’s December 2025 projections provides useful context. The committee projected 2026 GDP growth at 2.3%, unemployment at 4.4%, headline PCE inflation at 2.4%, and core PCE at 2.5%. The federal funds rate was expected to average 3.4%, signaling a gradual easing path.
Today’s updated projections could reflect meaningful shifts.
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Growth may be revised lower toward the 1.8%–2.0% range as higher energy prices weigh on consumption and business activity.
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Unemployment could drift higher toward 4.5%–4.6% if labor market momentum slows.
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Inflation is likely to be revised higher, with headline PCE potentially rising toward 2.6%–2.8%, while core inflation sees a more modest upward adjustment.
The policy rate projection remains the key variable. A stagflationary backdrop—slower growth alongside higher inflation—puts the Fed in a difficult position. Inflation argues for tighter policy, while growth risks argue for easing. The most likely outcome is a median rate near 3.4%, but with increased dispersion and uncertainty around that estimate.
All eyes will ultimately be on Powell’s press conference for guidance on how the Fed is balancing these competing risks.
This article was written by Greg Michalowski at investinglive.com.
