On Tuesday, major currency pairs including AUD/USD, EUR/USD, GBP/USD, and GBP/JPY experienced notable movements as global markets braced for the upcoming Federal Open Market Committee (FOMC) monetary policy meeting, with expectations nearly fully priced in for a 25-basis-point rate hike by the US Federal Reserve. The Australian Dollar softened by 0.11% against the US Dollar, trading at 0.7130, as risk appetite waned amid geopolitical tensions and anticipation of the Fed's decision. The US Dollar Index (DXY) rose 0.15% to 99.61, marking its second consecutive day of gains, while major US equity indices finished in the red. Geopolitical developments, including Saudi Arabia's notification of shipment delays to EU oil refiners following Houthi attacks on the East-West crude pipeline, pushed energy prices higher and contributed to the risk-off mood [1].
The Euro edged lower, with EUR/USD closing near 1.1540, down 0.1% on the day the European Central Bank's (ECB) second deposit rate hike of the year to 2.50% took legal effect. Despite the ECB's unanimous decision and upgraded growth forecasts (inflation at 3.0% this year, 2.5% next; growth at 0.9% this year, 1.4% next), the Euro continued to decline as the Fed's anticipated rate hike would widen the gap between the two central banks. Futures markets expect the Fed's rate to reach 4.25% or higher by March and 4.50% or higher by June, while the ECB's next move is seen in December at the earliest. The Centre for European Economic Research (ZEW) survey showed Eurozone investor sentiment falling to 25.8 in September, with only the banking sector improving, up 8.2 points to 52.9 [2].
The British Pound also drifted lower, with GBP/USD closing near 1.3470, down 0.2%. The Fed's expected hike would place its ceiling a quarter-point above the Bank of England's (BoE) Bank Rate of 3.75%. The BoE is set to vote on Thursday, with futures pricing only a 15% chance of a move at this meeting but four hikes by next summer. UK inflation data, forecast at 3.1% for August, is expected to peak a quarter earlier than the BoE's projection, while labor data showed a rise in the claimant count and a drop in payrolled employees. The 10-year gilt yield traded near 5.4%, its highest since 2007, but Sterling remained at the bottom of its 30-day range [4].
GBP/JPY rebounded above 209.00, up about 0.29%, as oversold risks eased despite bearish momentum. The cross had previously tumbled from yearly highs near 220.00, losing over 1,300 pips following two FX market interventions. The Relative Strength Index (RSI) showed modest upward momentum, and the pair could challenge resistance at 209.58 and 210.00, with a trend reversal requiring a move above the 200-day Simple Moving Average at 213.22. The Japanese Yen was the strongest against the New Zealand Dollar among major currencies on the day [3].
Across all sources, the dominant theme is the market's anticipation of the Fed's rate hike, which is expected to impact currency pairs by widening interest rate differentials. Geopolitical tensions and rising energy prices are also influencing risk sentiment and central bank decisions. Technical outlooks suggest moderate upside pressure for AUD/USD and GBP/JPY, but overall momentum remains subdued or bearish.
CONCLUSION
Currency markets are reacting strongly to the imminent Fed rate hike, with the US Dollar strengthening against major peers amid geopolitical tensions and higher energy prices. Central bank actions in Europe and the UK are failing to offset the Dollar's advantage, and technical indicators suggest limited upside for risk currencies. The market impact is high, with investors closely watching upcoming central bank decisions and economic data releases.