Forex Today: It's all about the Fed

Here is what you need to know on Wednesday, July 26:

Financial markets stay relatively calm early Wednesday as investors move to the sidelines while waiting for the US Federal Reserve (Fed) to conclude its two-day policy meeting. Following the announcement of the rate decision and the release of the policy statement at 1800 GMT, FOMC Chairman Jerome Powell will comment on the policy outlook and respond to questions at a press conference starting at 1830 GMT. The US economic docket will also feature New Home Sales for June.

The positive shift seen in risk sentiment made it difficult for the US Dollar (USD) to preserve its strength during the American trading hours on Tuesday. The US Dollar Index (DXY), which touched a two-week-high above 101.60 earlier in the day, reversed its direction and closed in negative territory, snapping a five-day winning streak. Early Wednesday, DXY fluctuates in a tight range above 101.00. Meanwhile, the benchmark 10-year US Treasury bond yield continues to move up and down between 3.8% and 3.9%.

Previewing the Fed event, "I want to stress that a 25 bps hike is fully priced in, and will not have an impact on markets," said FXStreet Analyst Yohay Elam. "Investors are laser-focused on hints about the next moves. The Fed does not publish new forecasts at this meeting, letting the statement talk first. Then, Fed Chair Powell will take the stage, answering questions and triggering the lion's share of volatility."

Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move.

EUR/USD fell to 1.1020 in the European session on Tuesday but erased a large portion of its losses in the second half of the day. At the time of press, EUR/USD was trading modestly higher on the day above 1.1050.

The data from Australia showed that the Consumer Price Index rose 0.8% on a quarterly basis in the second quarter. This reading followed the 1.4% increase recorded in the first quarter and came in below the market expectation of 1%. On a yearly basis, the CPI rose 5.4% in June as expected. AUD/USD fell sharply with the immediate reaction to inflation data and touched a daily low of 0.6734 before recovering back above 0.6750.

GBP/USD benefited from risk flows and registered strong daily gains on Tuesday. The pair stays in a consolidation phase at around 1.2900.

USD/JPY closed the second straight day in the red on Tuesday. Ahead of Friday's policy announcements, “Japan's long-term yield rate remains stable under the yield curve control (YCC) policy,” BoJ Governor Kazuo Ueda reportedly told a Japanese government official. 

Gold edged higher during the American trading hours on Tuesday and continued to stretch higher toward $1,970 early Wednesday.

Following Monday's sharp decline, Bitcoin continues to move in a very tight channel above $29,000. Ethereum registered small gains on Tuesday but lost its recovery momentum before testing $1,900. Early Wednesday, ETH/USD holds steady at around $1,860.