USD falls ahead of today’s Fed rate decision

Key Movers

In the Eurozone, the EUR/USD pair jumped to near 1.0842 this morning as Eurozone inflation grew more than expected in July and the USD declined. This has raised doubts about whether the European Central Bank (ECB) will resume its policy easing cycle in the September meeting. The Eurozone published the preliminary estimate of the July Harmonized Index of Consumer Prices (HICP), which rose by 2.6% year-over-year, surpassing the expected 2.4%. The HICP index measures how the prices of goods and services purchased by households change over time. The latest data did not provide the ECB the certainty it needed to confirm that the inflation battle had been won. Today’s figures slightly reduced the probability of a rate cut in September, but there are still six weeks of data to be seen before the ECB makes a decision.

The GBP/USD pair declined to near 1.2825 ahead of the Fed and Bank of England (BoE) policy decisions. The GBP weakened this morning amid market caution ahead of the BoE interest rate decision set for tomorrow. The British currency declined against most major peers as investors expect the BoE to reduce interest rates for the first time since March 2020. The BoE has been maintaining a restrictive monetary policy stance since December 2021 in an attempt to bring inflation down, which was driven by pandemic-led stimulus.

The Japanese yen continued to gather strength against the USD, capitalizing on the unexpectedly hawkish policy announcements by the Bank of Japan (BoJ). JPY rallied to multi-month highs against the USD, fueled by the BoJ rate hike. The Bank of Japan raised interest rates to 0.25% today.

The Canadian dollar stayed firm while the USD/CAD pair extended its losses after retreating from an eight-month high on Monday. The pair traded in the 1.3817 range this morning. The pair’s dip can be attributed to the recovery in oil prices and markets awaiting today’s upcoming Federal Reserve rate decision. West Texas Intermediate (WTI) crude oil traded around $77.56 per barrel this morning, up by around 2.21%. WTI rebounded from an eight-week low of $74.24 recorded on Tuesday. This was largely attributed to rising geopolitical tensions in the Middle East.