The US dollar rose in European trade on Wednesday against a basket of major rivals, holding its ground above five-month lows and on track for the first profit in four days.

The Fed is wrapping up its two-day policy meeting later today, fully expected to hold interest rates unchanged.

The Index

The dollar index rose 0.45% today to 103.72, with a session-low at 103.25.

On Tuesday, the index lost 0.2%, the third loss in a row, marking a five-month low at 103.20 on concerns about a potential US recession.

The Fed

The Federal Reserve is wrapping up its second 2025 policy meeting, widely expected to hold interest rates unchanged.

The Fed will provide clues on the path ahead for US interest rates amid mounting economic risks, and especially Trump’s tariffs.

US Rates

Data released last week showed US consumer prices slowed down more than expected in February, bolstering the case for a Fed rate cut in the first half of the year.

According to the Fedwatch tool, the odds of a Fed 0.25% rate cut in March stood at just 1%, while the odds of a May rate cut stood at 30%.

The odds of a Fed June 0.25% interest rate cut stood at 63%.

Markets are conflicted in their forecasts, with traders pricing 60 basis  points of Fed rate cuts by the year end.

Euro fell in European trade on Wednesday against a basket of major rivals, giving up five-month highs against the US dollar and on track for the first loss in four days on profit-taking. 

The German Parliament officially approved the constitutional amendment that would allow the government to increase spending massively, which would boost inflationary pressures in the eurozone’s biggest economy. 

The decline also comes as investors shun risks before the Federal Reserve’s policy meeting in 2025, expected to maintain interest rates unchanged. 

The Price

The EUR/USD pair fell 0.2% today to $1.0922, with a session-high at $1.0946.

The EUR/USD pair rose 0.2% on Tuesday, the third profit in a row, hitting a five-month high at $1.0954 as the German Parliament voted in favor of the financial stimulus plan.

German Stimulus 

The German Parliament officially approved major financial reforms, thus ending decades of fiscal conservatism in a step aimed at boosting economic growth and military spending.

The new package includes 500 billion euros for infrastructure spending, while massively expanding military spending as the US withdraws its military support.

The plans are expected to boost the growth rate to about 2.1% by 2026, with the spending divided over 12 years.

European Rates

Reuters reported the European Central Bank policymakers see an increasing probability of a hiatus in the cycle of interest rate cuts at the next meeting, before resuming later on. 

Traders reduced the odds of an ECB April rate cut to less than 50%.

The Fed

The Federal Reserve is wrapping up its second 2025 policy meeting, widely expected to hold interest rates unchanged.

The Fed will provide clues on the path ahead for US interest rates amid mounting economic risks, and especially Trump’s tariffs.

The Japanese yen fell in Asian  trade on Wednesday on track for the fourth straight loss against the US dollar, and about to plumb two-week lows. It comes after the BOJ’s policy decisions today.

The Bank of Japan voted to hold interest rates unchanged at 0.5%, the highest since 2008 as expected.

All nine members of the BOJ voted unanimously in favor of maintaining rates unchanged, as policymakers require more time to assess the impact of US tariffs on Japan’s export-oriented economy. 

The Price

The USD/JPY pair rose 0.3% today to 149.74 yen per dollar, with a session-low at 149.08.

The yen lost 0.1% on Tuesday, the third loss in a row, hitting a two-week trough at 149.93.

BOJ

As expected, the Bank of Japan maintained interest rates flat at 0.50%, with members warning of growing outside economic risks, especially US tariffs.

The BOJ stated that the Japanese economy is recovering moderately, but accompanied by some weak indicators. 

The BOJ expects the economy to achieve progress towards the 2% inflation target, buoyed by higher wages and consumption.

It said that future interest rate decisions will rely on global economic developments and inflation trajectories. 

Japanese Rates

The odds of a Bank of Japan interest rate hike at the May meeting fell to below 50%, with traders now waiting for more inflation, wages, and unemployment data in Japan.

The Bank of Japan voted to hold interest rates unchanged at 0.5%, the highest since 2008 as expected.

All nine members of the BOJ voted unanimously in favor of maintaining rates unchanged, as policymakers require more time to assess the impact of US tariffs on Japan’s export-oriented economy.