Forex Today: Greenback churns as Fed rate call looms

Investor sentiment is grinding out worry lines in the charts, pushing major currency pairs into near-term midranges as the Federal Reserve's (Fed) last rate call of 2024 approaches for a landing on Wednesday, with a smattering of other key central banks slated to make appearances this week as well.

Here's what you need to know on Wednesday, December 18:

The US Dollar Index (DXY) chewed a circle into the chart paper on Tuesday with bids hanging out near the 107.00 handle. US Retail Sales figures lurched higher to 0.7% MoM, stoking some mild concern among investors that maybe the Fed doesn't need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 235 bps rate trim according to the CME's FedWatch Tool.

EUR/USD shuddered and slipped back below the 1.0500 handle on Tuesday, stepping back from a four-day high of 1.0534 and shedding one-fifth of one percent against the Greenback. EU-centric economic data remains limited this week, leaving Fiber traders at the mercy of broad-market flows from the US Dollar. European PMI figures for December largely exceeded expectations earlier this week. However, Services PMI surveys remain stuck in contraction territory, leaving optimistic Euro bidders flummoxed by concerns over a deepening economic slowdown across Europe.

GBP/USD caught some lift to climb back above the 1.2700 handle, further paring away recent losses and extending Cable into a two-day bullish recovery. The pair has been battling a messy back-and-forth around the 1.2600 region since declining into the neighborhood in November, but now Pound Sterling traders are looking for a leg up ahead of a batch of key events from the UK side. UK Consumer Price Index (CPI) inflation figures are due early in the Wednesday London market session, and will be followed by the Bank of England's (BoE) latest rate call, slated for Thursday and widely expected to announce a hold on rate cuts to wrap up the year.

USD/JPY pulled back on Tuesday, pulling away from the week's early high of 154.50 and slipping back below 153.50, snapping a six-session winning streak for the Greenback in the process. The Bank of Japan (BoJ) has its own rate call scheduled for sometime early 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 hyper dovish Japanese central bank to raise interest rates again.