On Wednesday, major currency pairs including NZD/USD, EUR/USD, and USD/CAD exhibited cautious trading as investors awaited the US Federal Reserve's interest rate decision later in the day. The NZD/USD pair weakened to around 0.5865 during the early European session, reflecting seller interest as traders positioned themselves ahead of the Fed announcement, with no change in rates expected. The Fed is widely anticipated to maintain interest rates at 3.50%–3.75%, marking the third consecutive hold, and Jerome Powell’s press conference is expected to provide hints about future policy direction. This meeting is likely Powell's last as Fed Chair before a transition to nominee Kevin Warsh [1][2][3].
The EUR/USD pair traded lower for the second consecutive day, retreating below 1.1700 from earlier highs of 1.1720. The US Dollar drew support from cautious market sentiment and fading hopes for a negotiated end to the Iran war. Futures markets are fully pricing steady interest rates, with a nearly 80% chance that rates will remain unchanged at the December meeting. Powell’s press conference is particularly significant as his term ends on May 15, and President Trump has demanded his exit, though Powell has stated he would only remain if central bank independence is at risk. Technical indicators for EUR/USD show a neutral-to-bearish bias, with support at 1.1675 and resistance at 1.1720 [2].
USD/CAD held onto gains near 1.3690, reflecting strength as the US Dollar Index (DXY) traded 0.15% higher at 98.75. Investors expect the Fed to leave rates unchanged due to elevated energy prices impacting global inflation projections. The Bank of Canada is also expected to hold rates steady, with market participants monitoring remarks on the Canadian labor market, where the unemployment rate remains at 6.7%. Technical analysis suggests fading bullish momentum for USD/CAD, with resistance at 1.3724 and support at 1.3593 [3].
Geopolitical developments also influenced market sentiment. US President Trump stated that Iran requested the US to lift a naval blockade of the Strait of Hormuz during negotiations to end the two-month war. Mediators in Pakistan expect Iran to submit a revised peace proposal soon, and any signs of easing tensions could improve risk sentiment and potentially limit losses for currencies like the Kiwi. However, Trump rejected Tehran's peace plan, insisting on settling the nuclear issue first, and reportedly instructed aides to prepare for an extended blockade of Iranian ports [1][2].
CONCLUSION
Markets are exhibiting caution and the US Dollar is strengthening as investors await the Federal Reserve's rate decision and Jerome Powell's final press conference. With rates expected to remain unchanged, attention is focused on the Fed's tone regarding inflation and future policy. Geopolitical tensions and central bank transitions are adding to uncertainty, resulting in high market impact across major currency pairs.