Global Markets Turn Cautious Ahead of Fed Decision on USD Pairs

Risk sentiment has shifted to cautious mode as forex markets await Wednesday's FOMC decision, with implied volatility rising across major USD pairs. EUR/USD consolidated near 1.0570, while GBP/USD held steady at 1.2720, as traders reduced position sizes ahead of the high-impact event. Market participants are nearly unanimous in expecting a 25bp rate cut, but uncertainty surrounds Fed Chair Powell's forward guidance for 2024 monetary policy. Options markets show elevated demand for USD hedges, with one-week implied volatility for EUR/USD jumping to 8.5% from 6.2% last week. Asian session flows remained subdued, with USD/JPY trading in a tight 149.30-149.70 range. The key focus will be the Fed's dot plot projections and Powell's comments on the pace of future easing. A hawkish surprise limiting 2024 cuts could spark a USD rally, while confirmation of multiple cuts would likely extend recent dollar weakness.