Dollar's outlook hinges on the Fed meeting on interest rates policy today

Price action in the major currency pairs has been limited in the previous 24 hours and traders are now eager to find out how the most important event of the week will unfold. We’re talking about the Fed meeting on interest rates policy later today and the decision they need to make regarding the current policy and their hints regarding their future outlook on the economy.

We have explained in our previous reports why we think that there is zero chance of a decision to tighten interest rates’ policy at this meeting and given that there is no press conference scheduled for this time we are left with only the press statement to shed some light on the policymakers’ views. Last time the committee mentioned the need for further improvement in the labor market conditions and also some progress regarding the domestic inflation levels while why cited headwinds from the slowdown in a global scale.

We believe that the statement will most likely have little to no changes in the rhetoric and the Fed will take this opportunity to stress how important further progress in all sectors is for them to decide to pull the trigger. The Dollar traders remained cautious and reserved going into today’s meeting as they know that it’s going to be tough for the US current to remain afloat at this point.

Taking a look at the way the majors are trading ahead of the meeting, the Euro retreated slightly against the Dollar yesterday but that should be attributed to Euro’s weakness rather than any strength from Dollar’s side. The Single currency finds itself trading around the 1.1050 area this morning and a confirmation that the Fed remains reserved and looks into possibly delaying raising rates until the next year will send the currency to the upside. The 1.1100 and 1.1150 areas are the first targets of interest but we should be focused on the short-term as the Euro has its own problems and will not be able to sustain any strong gains for long.

The Cable, namely the GBP/USD currency pair for those unfamiliar with this term, traded lower yesterday but again this move should not be attributed to any kind of Dollar strength. The Pound was on the decline yesterday as the GDP report printed slightly weaker than expected and the UK currency looked lower. However, going into the Fed event today the Cable could recover higher and bounce off the 1.5300 lows where it trades this morning. The 1.5350 and 1.5400 levels are the obvious targets for any bullish momentum today.