EUR/USD traded cautiously near 1.0420 in the European session on Wednesday (29/1), with investors focused on the Federal Reserve's (Fed) monetary policy announcement at 19:00 GMT. The Fed is widely anticipated to keep interest rates steady in the 4.25%-4.50% range as officials worry that the disinflationary trend towards the central bank's 2% target has stalled and the labor market has stabilized.

With markets already fully pricing in the Fed leaving rates unchanged, investors will be closely watching Fed Chairman Jerome Powell's press conference after the policy decision. Investors will be keen to know how long the Fed will keep rates at current levels, given the stubborn inflation outlook and the assumption that US President Donald Trump's heavy tariffs will raise prices of goods and services.

Trump's push for higher tariffs on his trading partners has raised concerns about global growth. President Trump has recommended tariffs on pharmaceuticals, steel and advanced chips to boost domestic production. Meanwhile, tariffs of 25% on Canada and Mexico and 10% on China are very likely to be imposed, as White House Press Secretary Karoline Leavitt indicated on Tuesday. Leavitt said that the 25% tariffs on Canada and Mexico that began on February 1 are "still in place." Leavitt added that the President is "still considering 10% tariffs on China" starting on Saturday.

Ahead of the Fed's policy decision, the US Dollar (USD) traded in a subdued manner, with the US Dollar Index (DXY) fluctuating around 107.90. The US Dollar has performed strongly in recent months on the assumption that Trump's tariffs will accelerate price pressures and force the Fed to keep interest rates unchanged for longer. (AL)

Source: FXstreet