Dollar Rebounds, Euro Loses Steam Ahead of FOMC
The euro began to slowly retreat on Wednesday (January 28th) after briefly testing the psychological 1.2000 level, as the US dollar attempted to recover slowly ahead of the Fed's interest rate decision scheduled for 19:00 GMT. At the time of writing, EUR/USD was hovering around 1.1935, down from its intraday peak, which was its highest level since June 2021.
The dollar's rebound was supported by comments from US officials that helped calm market panic after the greenback's selloff in recent days. US Treasury Secretary Scott Bessent reiterated the outlines of a "strong dollar" policy, while denying speculation that Washington was meddling in the forex market—he emphasized that the US was not intervening in USD/JPY.
Bessent's remarks came shortly after President Donald Trump's seemingly relaxed comments about the dollar's weakness. Trump said the dollar should "find its own level," reinforcing the market perception that the White House was in no rush to halt the currency's weakening.
In terms of monetary policy, the market widely expects the Fed to hold interest rates in the 3.50%–3.75% range, following three 25 bps cuts last year. Since the December meeting, US employment data has remained quite resilient, while inflation has eased, though not yet reached the 2% target. This situation has put the Fed in wait-and-see mode, with market focus locked on Jerome Powell's statement: whether the path to further easing remains open, and how soon.
Behind the scenes, the issue of Fed leadership is also making the market wary. Trump is reportedly set to announce his choice for the next Fed Chair (the timing is uncertain), with names such as Rick Rieder, Christopher Waller, and Kevin Warsh being mentioned as possible candidates. Investors believe Trump's choice could shift the policy direction to a more "soft" one, given Trump's repeated criticism of Powell for not cutting interest rates aggressively enough.
Meanwhile, in Europe, the recent strengthening of the euro has begun to draw attention from the ECB. ECB Governing Council member François Villeroy de Galhau said the central bank is closely monitoring the appreciation of the euro and its impact on the likelihood of lower inflation—a factor that could help guide the ECB's interest rate decisions in the coming months.
Source: Newsmaker.id
