Forex Today: Markets brace for latest Fed rate call

The US Dollar eased slightly as investors pivot toward the Federal Reserve's (Fed) latest rate call due in the middle of the week. Sentiment is riding on the high side, albeit cautiously, as markets widely anticipate a third straight quarter-point rate cut from the Fed.

Here's what you need to know heading into Tuesday, December 17:

The US Dollar Index (DXY) eased one-sixth of a percent lower on Monday, crimping recent gains and pausing at the top of a near-term bull run as markets await the Fed's latest rate call slated for Wednesday. A 25 bps rate trim is fully priced in with 99.1% odds, according to the CME's FedWatch Tool. Traders will also be keeping a close eye on the Fed's latest update to its Summary of Economic Projections (SEP), or the "dot plot" of interest rate forecasts from Fed policymakers themselves.

US Purchasing Managers Index (PMI) figures for December came in mixed on Monday, with Services PMI survey results rising to multi-year highs and the Manufacturing component sinking further than expected in a sharp pullback, falling away from the 50.0 midline and plunging back into contractionary expectations territory. US Retail Sales figures will land on Tuesday, but could see a crimped market response as the Fed's last rate call of the year hulking just around the corner.

EUR/USD cycled familiar levels near 1.0500 to kick off the new trading week as markets broadly ignored a flurry of appearances from European Central Bank officials early in the day. European PMI figures for December broadly beat expectations. Still, Services PMI surveys remain stumped in contraction territory as worries of a steepening economic slowdown across European continue to grip investors and business operators.

GBP/USD snapped a three-day losing streak, clawing back 0.55% through Monday's trading and pushing bids back into the 1.2700 handle. UK Services PMI figures fell to an 11-month low, but a welcome uptick in the Manufacturing component helped to keep Cable sentiment bolstered into the high end. GBP traders will now be focusing on Tuesday's upcoming UK wages and labor data, where quarterly Average Earnings are expected to accelerate to 5% on a yearly basis.

USD/JPY climbed back above the 154.00 handle on Monday, climbing a little under one-third of one percent. The Japanese segment of this week's economic data docket is a thin affair, but the Bank of Japan's (BoJ) latest rate call is looming ahead on Thursday. The BoJ is broadly expected to keep rates on hold yet again in December, and investors are looking to understand exactly what conditions would convince the Japanese central bank to continue raising interest rates.