The U.S. dollar remains under pressure, and the key question for investors is how much further it might weaken before and after the Federal Reserve’s upcoming policy meeting.
This week, the spotlight is firmly on the Fed as markets weigh whether policymakers will temper expectations of a prolonged rate cutting cycle, which some economists believe could stretch into next year. While the Fed’s decision on Wednesday will dominate sentiment, traders will also be watching the Bank of Canada, the Bank of England, and the Bank of Japan, all of which are set to announce monetary policy updates.
Fed Chair Jerome Powell’s comments will be the focal point. Investors expect him to provide clarity on how the central bank views recent inflation and employment data, as well as its plans for the path of interest rates. Any gap between market expectations and Powell’s guidance could spark sharp volatility across asset classes.
The Fed faces a delicate balancing act. A slowdown in disinflation complicates policy decisions tightening too long risks a deeper recession, while easing too soon could reignite inflationary pressures. Powell’s remarks will be closely scrutinized for hints about how many more rate cuts are realistic this year. At the same time, markets will be sensitive to any signs of ambiguity, which could fuel further uncertainty.
The labour market outlook will also be critical. If Powell highlights rising unemployment and signals concern about ongoing job losses the worst since the pandemic investors may interpret this as a green light for faster rate cuts. Conversely, if he downplays labour weakness and stresses resilience, the Fed could be signalling that it will move more cautiously than markets expect.
Elsewhere, global central banks will add to the week’s complexity. The Bank of Canada may feel pressure to align with the Fed given its similar economic backdrop. The Bank of England faces its own inflation-versus-growth dilemma, while the Bank of Japan’s stance on yield curve control and the prospect of further tightening will be closely monitored, given Japan’s outsized role in global credit markets.
In short, the coming week promises heightened uncertainty as policymakers navigate fragile economic conditions.
Technical Outlook
EUR/USD:
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Bulls must establish control above 1.1745 to open the path toward 1.1780.
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A breakout from there could target 1.1813, though progress without strong institutional support may be limited.
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The ultimate bullish target stands at 1.1866.
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On the downside, strong buying interest is expected near 1.1700. If absent, deeper support lies at 1.1665 and 1.1630.
GBP/USD:
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Buyers need to clear resistance at 1.3590 to aim for 1.3615.
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Sustained momentum could push the pair toward 1.3645, though breaking higher may prove difficult.
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If sellers regain control at 1.3525, downside pressure could intensify, dragging the pair toward 1.3495 and potentially 1.3458.
This analysis is for informational purposes only and should not be considered direct trading advice.
