USD/CAD trades higher around 1.3800, Fed policy in focus

• USD/CAD moves slightly higher to near 1.3800 ahead of the Fed's monetary policy decision.
• The Fed is expected to keep borrowing rates steady in the range of 4.25%-4.50%.
• Investors await the Canadian employment data for April, which will be released on Friday.

The USD/CAD pair rises to near 1.3800 during European trading hours on Wednesday. The Loonie pair gains as the US Dollar (USD) edges up ahead of the Federal Reserve's (Fed) interest rate decision at 18:00 GMT.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, ticks higher around 99.50.

Traders are increasingly confident that the Fed will keep interest rates steady in the current range of 4.25-4.50% for the third meeting in a row. The reasoning behind firm Fed dovish bets is heightened uncertainty over the US economic outlook under the leadership of President Donald Trump.

US business owners have indicated that they will pass on the impact of higher tariffs imposed by President Trump to consumers, a scenario that will result in a resurgence in consumer inflation.

Market sentiment turns favorable for equities across the globe as the United States (US) and China have agreed to trade talks this week in Switzerland. However, the trade deal between them is unlikely to happen anytime soon, as US Treasury Secretary Scott Bessent has indicated that the meeting will be more about de-escalating the trade war before moving forward. "My sense is that this will be about de-escalation, not about the big trade deal," Bessent said, according to CNBC.

Meanwhile, a high-stakes press conference between US President Trump and Canadian Prime Minister Mark Carney has escalated trade tensions between the two nations. Trump referred to Canada as merely the "largest client" and indicated that the nation relies heavily on trade with Washington.

On the economic front, investors will pay close attention to the Canadian labor market data for April, which will be released on Friday. The employment data will significantly influence the outlook of the Canadian Dollar (CAD).