The dollar is gaining slightly before the FOMC decision

Only one thing matters during today's session - the FOMC. The decision on the level of interest rates in the US will be announced at 20:00 p.m., and Jerome Powell's press conference will start at 20:30 p.m. In fact, no surprises should be expected from the decision itself. Investors agree that today interest rates will be maintained at their current levels.

What will be crucial for the dollar and stock indices will be the development of expectations regarding the Fed's future moves. Apart from the decision itself today macroeconomic projections will be presented, which may shed some light on the future path of interest rates. It is possible that the so-called dot-plot will show three rate cuts next year.

Inflation expectations under control

Yesterday, US Treasury Secretary and former Fed Chair Janet Yellen said dovishly that inflation expectations are under control and an increase in real interest rates may influence further Federal Reserve policy. Yellen doesn't see why at this point inflation would be off target and emphasized that the US economy was on the way to a 'long-awaited' soft landing.

Powell's speech may also have a slightly less dovish tone today, but markets are rather convinced that the process of reducing interest rates will begin soon. Yesterday's inflation data from the US met expectations, the main reading was 3,1% y/y and core inflation was 4,0% y/y. We observed a slight increase on a monthly basis, but the reaction in the dollar was small.

Resumption of the upward trend

Today, apart from the decision FOMC, we will get data on producer inflation from the US and data on oil stocks. On Wednesday morning, USD movements are limited, the American currency is slightly strengthening after yesterday's weakness. The EUR/USD rate has responded to the key medium-term support zone at 1,0760 in recent days. Looking only at technical analysis, if the price remains above today, it may support a scenario assuming a resumption of the upward trend and a move towards USD 1,10. On the other hand, closing the day below 1,0760 could mean that the major currency pair is back on a downtrend. Then the target for sellers will be the October lows - below 1,0500.

Will the zloty come under pressure?

As for our national currency, it is trading mixed in the morning. The zloty is losing slightly against the dollar and the franc, but is strengthening against the British pound, while the euro is trading flat. The further direction of PLN pairs will depend on the movement EUR / USD. In the event of increases in the main currency pair, the Polish zloty may strengthen. In turn, if EUR/USD rates resume the downward trend (USD strengthens), the zloty may come under pressure.

Looking technically at USD/PLN, the quotations remain above the round level of 4,00, which may be supportive scenario assuming a correction towards PLN 4,14. On the other hand, a return below PLN 4 may lead to a resumption of the downward trend with a target of PLN 3,94. At the time of preparation of this commentary, the price for a dollar is PLN 4,0170, for a euro it is PLN 4,3315, for a franc it is PLN 4,5830, and for a pound it is PLN 5,0310.

Source: Łukasz Stefanik, XTB