The demand for the US Dollar surged this week, causing significant fluctuations across major currency pairs. As traders exercise caution and refrain from placing directional bets, all eyes are on the Federal Reserve's impending policy announcement. The Federal Reserve is expected to announce a 25-basis-point cut, adjusting the benchmark rate to 3.00%. This anticipation has resulted in the GBP/USD pair experiencing bearish pressure, dropping towards 1.2400 in the latter half of Wednesday.
The European Central Bank (ECB) is also in focus as it prepares to potentially reduce interest rates by 25 basis points. The ECB is unlikely to offer forward guidance but may hint at further rate cuts. While President Christine Lagarde is expected to strike a dovish tone regarding the growth outlook, recent PMI figures suggest tentative signs of a rebound. Financial markets have priced in the terminal ECB rate at approximately 2%, and a more aggressive rate-cutting cycle could weaken the euro.
In Canada, the Bank of Canada (BoC) is anticipated to lower its policy rate for the sixth consecutive meeting on Wednesday. Meanwhile, gold finds itself struggling to build on Tuesday's gains, trading in the red below $2,760 on Wednesday. Investors await the Federal Reserve's monetary policy decisions, creating a challenging environment for XAU/USD to gain directional momentum.
The EUR/USD pair lost traction during Wednesday's trading session, moving into negative territory near 1.0400. This decline reflects broader market sentiment as traders react to economic data and central bank maneuvers.
Australia will release fresh inflation-related data on Wednesday, which is expected to indicate eased price pressures. Such data could pave the way for a Reserve Bank of Australia (RBA) interest rate cut in February.