Dollar To Retreat On Cautious Fed

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The greenback has settled above the 103.00 mark on Wednesday, cautiously awaiting the outcome of the Federal Reserve decision. The US currency came off nearly twenty-year peaks seen last week just below the 104.00 barrier that triggered some profit-taking amid month-end flows and overbought conditions.

Since the start of the week, the Fed’s verdict has been in the market focus, with trading activity looking relatively low amid a cautious tone among investors. The US central bank is widely expected to hike rates by 50 basis points later on Wednesday. The question is whether FOMC members express an even more hawkish tone when commenting on further tightening steps. Should the bank sound less aggressive than previously, the USD bulls will be disappointed, suggesting the buck would face a major retreat across the market.

In this scenario, the USD index may easily get back below the 102.80 zone, followed by the 102.30-102.20 intermediate support. Furthermore, the dollar could face even deeper losses depending on the Fed’s tone. Similarly, the index will easily break above 104.00 on a hawkish rhetoric by Powell. 

A broad-based sell-off in the greenback would push the euro back above the 1.0600 figure for the first time this month. EURUSD has settled just above 1.0500 ahead of the Fed’s decision, struggling for direction after a recent fall to multi-year lows around 1.0470.

Meanwhile, gold prices enjoy a modest bounce from mid-February lows registered around $1,850 on Tuesday. The XAUUSD struggles to exceed a slightly ascending 100-DMA that can be easily broken if the dollar gives up gains after the Fed meeting. In a bullish scenario, the bullion would retarget the $1,900 psychological level.