US Dollar firms as markets brace for Fed decision

• The US Dollar Index climbs near 108.20 ahead of the Federal Reserve's policy announcement.
• The Fed is expected to hold rates steady at 4.25%-4.50%, with Powell's guidance in focus.
• Investors assess how Trump's economic policies, including proposed 25% tariffs on Canada and Mexico, could shape monetary policy.
• Weak consumer confidence and durable goods orders add uncertainty to the Fed's outlook.

The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, extends its recovery above 108.00 as investors await the Federal Reserve's (Fed) monetary policy decision. Markets expect the central bank to leave rates unchanged, but Chair Jerome Powell's remarks could be key in shaping rate expectations. With United States (US) President Donald Trump's proposed tariffs on Canada and Mexico adding further uncertainty, traders are keen to gauge the Fed's stance on inflation and growth.

Daily digest market movers: US Dollar steadies ahead of key Fed meeting

• The Federal Reserve is widely anticipated to maintain its current interest rate at 4.25%-4.50%.
• Powell's presser in focus: Investors will watch for signals on whether the Fed could leave a March rate cut on the table.
• As for now, the CME FedWatch Tool indicates a 33% chance of a rate reduction in March, up from previous estimates.
• Datawise, the Atlanta Fed's GDPNow model raised Q4 growth estimates to 3.2% SAAR from 3.0%.
• The first official reading of Q4 GDP is due tomorrow, with consensus at 2.6% vs. 3.1% in Q3.
• Inflation remains a concern: Above-trend growth and persistent price pressures could deter the Fed from cutting rates soon.

DXY technical outlook: Resilience above 108.00, but caution remains

The Dollar Index remains on solid footing above 108.00, showing signs of stabilization ahead of the Fed's policy announcement. However, momentum indicators reflect mixed signals. The Relative Strength Index (RSI) remains below 50, suggesting limited bullish strength, while the MACD's red bars indicate ongoing selling pressure. If the DXY maintains its current position, further gains toward 108.50 are possible. A break below 107.50 would open the door for additional losses.