The rate-setting committee will meet for the first time this year. The Federal Reserve is expected to keep interest rates unchanged at the most politically charged moment for global leaders and to ignore President Donald Trump's calls for rate cuts.
Nevertheless, despite the anticipated stability of the funds rate, close attention will focus on the FOMC's accompanying statement and the Fed chair's press conference. Analysts and investors will dissect every word for clues about the future path of monetary policy.
Facing slowing global growth, persistent trade tensions with the rest of the world, and a sharp drop in the US dollar, the Fed faces a difficult task: balancing support for growth with inflation control. On the one hand, rate cuts could bolster business activity and help labor?market recovery. On the other hand, too soft monetary policy could overheat the economy and push up inflationary pressures.
Accordingly, the FOMC is expected to take a wait?and?see stance, closely monitoring economic data and geopolitical developments. Key factors that will shape Fed decisions in coming months include inflation dynamics, labor?market conditions and resolution of trade and geopolitical conflicts. Investors should watch for signals from Washington and adapt their strategies to changing conditions.
Besides, in addition to frequent complaints from Trump about the Fed's reluctance to lower interest rates, the central bank now faces the threat of grand?jury subpoenas and potential criminal charges. Last Wednesday, the Supreme Court heard arguments on whether the president can remove Fed governor Lisa Cook. Even in court, there is caution about Trump's attempt to fire a Fed official.
The odds are that a majority of FOMC members will be able to point to data supporting the decision to keep interest rates unchanged. Such unity would be seen as backing for Jerome Powell, who has been heavily criticized by the White House. Key figures to watch are governors Christopher Waller and Michelle Bowman: if they vote with the majority to hold rates, it will show Trump that Powell has institutional support.
Powell is likely to signal that policy is appropriately positioned for now, while refraining from bold statements about the next steps for rates. That will buy officials time to assess the effects of earlier rate cuts. Recent data showing a fall in US unemployment in December while inflation remains above the Fed's target may reassure both hawks and doves and help build support for pausing the easing cycle.
Technical outlook
EUR/USD
On the technical side for EUR/USD, buyers now need to think about taking 1.1890. Only that will allow a test of 1.1934. From there a move to 1.1970 is possible, but doing so without support from major players will be quite difficult. The far target is 1.2000. On the downside, I would expect significant buyer activity only around 1.1847. If there is no one there, it would be better to wait for a new low at 1.1815 or to open longs from 1.1785.
Technical outlook
GBP/USD
For GBP/USD, pound buyers need to take the nearest resistance at 1.3685. Only then, a move toward 1.3720 will be realistic; breaking above that will be difficult. The far target is 1.3754. On the downside, bears will try to seize control of 1.3650. If they succeed, a breakout of this area would be a serious blow to bulls and could push GBP/USD to 1.3620 with the potential to decline to 1.3590.