15.09.202509:15 Forex Analysis & Reviews: The U.S. dollar continues to face problems

The U.S. dollar continues to face problems, and the key question remains: how much more will it lose before the Federal Reserve meeting, and how much after.

The main issue for investors this week is whether Fed officials will push back against market expectations of a series of rate cuts, which many economists believe could last into next year. Clearly, the Fed's decision on Wednesday will set the tone for global markets, including currencies, but it is not the only important event on the calendar. The Bank of Canada, the Bank of England, and the Bank of Japan are also set to announce their monetary policy decisions.

The spotlight will undoubtedly be on Fed Chair Jerome Powell's remarks, where he is expected to comment on the latest inflation and employment data and hint at the future policy trajectory. Markets are watching closely for signals on when rate cuts might begin and how quickly they will proceed. Any divergence between market expectations and Fed guidance could lead to significant volatility.

The recent slowdown in disinflation places the Fed in a difficult position: on one hand, maintaining tight monetary policy risks a recession, while on the other, easing too soon could spark a new wave of inflation. Powell's speech will be key to outlining the Fed's strategy. Investors expect him to reaffirm the regulator's readiness to cut rates further this year, but the question is how many cuts will be scheduled. At the same time, it will be important for Powell to avoid ambiguity in his statements so as not to fuel market uncertainty.

Special attention will be paid to his comments on the employment outlook. If Powell voices concern about job losses—at a time when the labor market is experiencing its worst downturn since the pandemic—it could be seen as a signal that the Fed is prepared to accelerate rate cuts. Conversely, if he emphasizes labor market resilience and frames current problems as temporary, it may indicate the Fed intends to keep policy tight for longer than markets expect.

Decisions by other major central banks will also be important. The Bank of Canada, given its similar economic dynamics to the U.S., may be pressured to follow the Fed's path. As for the Bank of Japan, its wait-and-see stance and yield curve control continue to preoccupy investors. Any signs of readiness to raise rates further could have significant consequences for global markets, given Japan's role as a major creditor.

Overall, the week promises to be eventful and filled with uncertainty, as global central banks attempt to navigate complex economic conditions.

Technical outlook for EUR/USD: buyers now need to secure control over 1.1745. Only then will a test of 1.1780 become possible. From there, the pair could move up to 1.1813, though doing so without support from large players will be challenging. The ultimate target stands at 1.1866. In case of a decline, I expect significant buying interest to appear near 1.1700. If none emerges, it would be preferable to wait for a retest of 1.1665 or consider long positions from 1.1630.

Technical outlook for GBP/USD: pound buyers need to break above immediate resistance at 1.3590. Only then will they be able to target 1.3615, though breaking higher will be difficult. The ultimate target lies at 1.3645. In the event of a decline, bears will attempt to take control at 1.3525. If successful, a breakout of this range would deal a serious blow to bulls and push GBP/USD toward 1.3495, with prospects of extending to 1.3458.