US Dollar Index holds gains near 99.50 ahead of Fed decision, awaits Powell's remarks

• The US Dollar Index remains stronger as investors adopt a cautious stance ahead of the Federal Reserve's interest rate decision.
• The focus is on Fed Chair Jerome Powell's comments, particularly against the backdrop of rising tariff tensions.
• US Treasury Secretary Bessent and Trade Representative Greer are set to meet with Chinese Vice Premier He Lifeng this weekend.

The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, is trading around 99.50 during European hours on Wednesday, rebounding after losing over 0.50% in the previous session.

The Greenback is gaining strength as markets turn cautious ahead of the Federal Reserve's (Fed) interest rate decision, due later in the North American session. The Fed is widely expected to keep its benchmark rate unchanged at 4.25-4.50% for the third consecutive meeting in May 2025. This pause reflects the central bank's effort to balance signs of cooling inflation with a strong labor market and growing uncertainty surrounding US trade policy.

The US economy contracted in Q1, with GDP declining at an annualized rate of 0.3%, primarily driven by a spike in imports as businesses and consumers rushed to stock up ahead of anticipated tariff hikes. Despite this slowdown, inflation metrics such as the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) continue to show easing price pressures, while employment data remains robust. Still, investors are increasingly pricing in the possibility of softer economic conditions in the coming months.

Market participants will likely closely watch Fed Chair Jerome Powell's remarks, especially amid escalating tariff tensions and renewed political pressure from President Trump urging rate cuts.

In parallel, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are scheduled to meet Chinese Vice Premier He Lifeng in Geneva this weekend. This will be the first high-level meeting since the US escalated tariffs, heightening global trade tensions. China's Ministry of Commerce confirmed participation after evaluating Washington's proposals in light of domestic industry input and global sentiment.