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EUR/USD, GBP/USD and USD/JPY in tight ranges ahead of Fed decision

FX markets are calm as investors await the Fed decision, with significant volatility a possibility depending on the news.

​EUR/USD hovers above recent lows

The euro’s dive against the dollar has paused for now, as the currency pair awaits the Federal Open Market Committee (FOMC) decision tonight.

In recent weeks the rush into the US dollar has taken on new life, and as a result EUR/USD has been under firm pressure, dropping from near $1.12 at the end of March to stand nearer $1.05 by the beginning of May.

With the European Central Bank (ECB) discussion around rate hikes only just beginning to gain traction, it may be a little while before the next counter-trend move in EUR/USD, unless tonight offers up a more dovish Federal Reserve (Fed) that prompts some readjustment in the long dollar trade.

In the event of a bounce, which so far has seemed quite unlikely, the pair will target the $1.10 level, where a move higher in late April ran out of steam. But before this it must clamber above $1.0580, which has held back progress.

For now the pair shows little desire to break below $1.0480, but such a drop would bring the $1.0385 lows into view once again.

GBP/USD edges below $1.25 again

It is going to be a busy and potentially volatile 36 hours for the pound and the dollar.

Today has a full docket of US data, including the monthly ADP employment report, the ISM non-manufacturing PMI and then, of course, the Fed decision.

Plus, there is much debate about the UK economy, as some former policymakers begin to call for a UK rate cut in order to help ease the burden on consumers squeezed by higher prices for essentials and the recent increase in National Insurance.

Similar to EUR/USD, GBP/USD is holding above recent lows, but has reversed course from its attempted bounce on Tuesday, and now seems to be headed lower. This would bring $1.2411 into play, the low from last week.

Meanwhile, any short-term bounce needs to clear $1.26 to open the way to a possible rebound towards $1.30.

USD/JPY stalls ahead of FOMC decision

Unsurprisingly, dollar bulls have been reluctant to push their luck, after the huge rally here.

Today’s busy data docket for the US would keep most people on the side of caution anyway, but the Fed tonight provides scope for additional volatility.

If the Fed suggests that 75 basis point hikes are now possible then we should see further dollar strength, but any caution regarding the impact on the US economy would see the pair weaken.

Further gains in the medium-term continue to target the ¥135 level, last seen in 2001. Meanwhile, a retracement below ¥127 would spark expectations of a more substantial decline, that could see the pair head back towards ¥124.

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