Forex Today: The calm before the BoC and Fed storm

Here is what you need to know on Wednesday, September 17:

The risk rally on global indices takes a breather amid a typical market caution heading into the key central bank event risks, with the US Federal Reserve (Fed) policy announcements eagerly awaited.

Weakening labor market and sticky inflation in the United States (US) have ramped up bets for aggressive policy easing by the Fed this year. For the September decision due later in the day, a 25 basis points (bps) interest rate cut is fully priced in.

The persistent dovish sentiment surrounding the Fed keeps the US Dollar (USD) miring in over two-month lows against its six major currency rivals. Early Wednesday, the USD Index is seeing a modest uptick on pre-Fed position readjustments, near 96.70.

On Tuesday, the data published by the US Census Bureau showed that Retail Sales rose by 0.6% on a monthly basis in August to $732 billion, following a 0.6% revised increase in July and came in better than the market expectation of 0.2%.

Annually, Retail Sales were up 5% in the same period. The data failed to move the markets' pricing for the Fed verdict this Wednesday. Markets continue to pencil in 67.9 bps of cuts by the end of the year, according to Refinitiv's interest rate probabilities.

Traders now eagerly await the Fed's interest rate decision, Summary of Economic Projections (SEP), the so-called Dot Plot chart, and Chairman Jerome Powell's press conference for fresh hints on the scope and the timing of the central bank's further rate cuts.

GBP/USD looks to extend its corrective decline from two-month highs of 1.3672 following the UK Consumer Price Index (CPI) data for August. The pair is trading on the back foot near 1.3650, as of writing.

The UK's Office for National Statistics (ONS) showed that the annual CPI rose by 3.8% last month, remaining at the highest level since January 2024. The market forecast was for a 3.9% growth.

EUR/USD struggles amid the broad-based USD rebound. A fresh bout of profit-taking engulfs the pair in the early European trading hours after having reached the highest levels in four years at 1.1879 on Tuesday. European Central Bank (ECB) President Christine Lagarde is scheduled to speak later in the session ahead of the Fed event.

USD/CAD is attempting a tepid bounce to retake 1.3750, snapping a two-day downtrend early Wednesday. Traders resort to position adjustments ahead of the Bank of Canada (BoC) and the Fed policy decisions. In Tuesday's early American session, Statistics Canada published the CPI data for August, which showed that inflation rose to 1.9% on a year-over-year (YoY) basis from 1.7% in July. Markets expected a 2% reading.

USD/JPY witnessed some volatility in the early Asian session, falling as low as 146.21 before rebounding to 146.60, where it now wavers. The pair follows the USD price action, while benefiting from renewed weakness in the Japanese Yen (JPY) after a fourth consecutive month of declines in exports hurt JPY buyers.

Gold has paused its record rally to above $3,700 as traders look to cash in on their Gold long positions, bracing for intense volatility on the Fed showdown. In the early European session, XAU/USD is posting moderate losses at around $3,680.