Dollar drifts higher ahead of Fed meeting; euro slips lower By Investing.com

Euro US Dollar0.03%British Pound US Dollar0.00%US Dollar Japanese Yen-0.12%Australian Dollar US Dollar0.17%US Dollar Swedish Krona-0.03%US Dollar Chinese Yuan Offshore-0.04%

Investing.com - The US foreign exchange dealerUS dollar edged higher Wednesday amid caution ahead of the conclusion of the latest Federal Reserve meeting, while the euro slipped with the European Central Bank official set to gather on Thursday.

At 04:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 107.850, but still marginally lower on the week.

Fed to conclude policy meeting 

The Federal Reserve is widely expected to hold rates steady on Wednesday, and traders will be looking to its commentary on inflation for clues on the future path of interest rates, particularly in the light of recent US tariff concerns.

“The Fed needs to see significant economic weakness and lower inflation to justify further rate cuts,” said analysts at ING, in a note. “For the moment, the job market and wages are gradually cooling, but not enough for resuming easing. According to market pricing, the conditions for a cut won’t be in place until June.”

The dollar has been on a yo-yo string since Donald Trump's inauguration, reacting mainly to shifting tariff expectations. 

Trump has flagged possible 25% duties on imports from Canada and Mexico on Feb. 1, and has threatened to hit the EU and China with tariffs as well.

“If US tech stocks enjoy another calm day and the Fed remains cautious on easing as we expect, the dollar should consolidate gains as the revamped universal tariff risk justifies the current short-term USD overvaluation,” ING added.

Euro lower ahead of ECB meeting

In Europe, EUR/USD dropped 0.1% to 1.0423, after data indicated that German consumer sentiment is set to dip heading into February due to growing pessimism among households about the economy.

The consumer sentiment index, published by GfK and the Nuremberg Institute for Market Decisions, unexpectedly fell to -22.4 points from a slightly revised -21.4 points the month before.

Spanish gross domestic product data, released earlier Wednesday, showed its economy expanded a stronger-than-expected 3.2% in 2024, by far outperforming its eurozone peers' sputtering economies.

The European Central Bank meets on Thursday, and is widely expected to cut interest rates once more, having cut a total of four times in 2024.

“We don’t expect EUR/USD to trade much further from the current spot by the end of the week. If anything, we believe the risks are skewed towards a move below 1.040 rather than a return above 1.050,” ING added.

GBP/USD traded 0.1% lower to 1.2432, while USD/SEK rose 0.1% to 11.0128, with the Riksbank widely tipped to cut rates by a quarter point later in the session.

Aussie dollar slips after CPI data

In Asia, USD/JPY traded 0.2% lower to 155.29, with inflation data from Tokyo likely to be in focus this week, with it scheduled for release on Friday.

USD/CNH traded 0.1% higher to 7.2743, with onshore markets shut for the Lunar New Year holiday.

AUD/USD pair inched 0.2% lower to 0.6234, in line with the regional trend, while softer domestic inflation data further put downward pressure.

Australia's CPI inflation rate declined to its lowest level in nearly four years, with the annual rate dropping to 2.4% in the December quarter, down from 2.8% in September.