US Dollar drifts as Fed decision looms

• DXY trades in neutral fashion near 107.00 on Wednesday.
• Market focused on incoming Fed dot plot and 2025 rate forecasts.
• A 25 bps cut is already priced in.

The US Dollar Index, which measures the value of the USD against a basket of currencies, trades neutrally near the 107.00 mark on Wednesday as it consolidates ahead of the Federal Reserve (Fed) interest rate decision. Traders are keenly awaiting the dot plot to gauge the number of rate cuts envisioned in 2025. Despite a recent easing in the USD following profit-taking on Friday and new Chinese economic data, the Greenback holds steady, looking for direction as the Fed policy announcement nears.

Daily digest market movers: US Dollar stands flat as Fed decision takes center stage

• The US Dollar stands flat as markets await the Federal Reserve's rate decision, focusing on potential changes in the "dots" that project future interest rates.
• Evolving economic conditions have inflation measured by the Consumer Price Index (CPI) rising from 2.4% in September to 2.8% in November, while growth remains solid and labor markets firm.
• Markets expect a 25-basis-point rate cut, along with forecasts for three cuts in 2025, viewed as a neutral outcome. A hawkish surprise, with fewer cuts, could dampen risk sentiment, though a complete pause on cuts is unlikely.
• Updated macro forecasts and dot plots are likely to tilt hawkish with stronger growth and stubborn inflation prompting fewer projected cuts.

DXY technical outlook: Indicators firm, but gains capped below resistance

Indicators recovered significant ground last week, yet they appear insufficient to push the index beyond the 107.00-108.00 area. At the start of the week, the Index retreated slightly, signaling momentum fatigue.

Still, the broader picture remains constructive if the DXY can hold above its 20-day Simple Moving Average. As traders await the Fed's guidance, technical signals suggest a cautious but potentially supportive environment for the Greenback, barring any hawkish surprises that might fuel a breakout.