EUR/USD fell sharply to just below 1.0900 during the European session on Wednesday (3/19) after posting a fresh five-month high near 1.0955 the previous day. The major currency pair weakened as the US Dollar (USD) performed strongly ahead of the Federal Reserve (Fed) interest rate decision at 18:00 GMT. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, jumped to near 103.70 after hitting a five-month low around 103.20 on Tuesday.

According to the CME FedWatch tool, the Fed is almost certain to keep the benchmark lending rate unchanged in the range of 4.25%-4.50%. This will be the second consecutive policy meeting where the Fed will leave rates unchanged.

Traders are increasingly confident that the Fed will maintain the status quo on Wednesday as officials argued that a "wait and see" approach should be maintained until they gain clarity on the outlook for the US economy under President Donald Trump.

Market participants expect that Donald Trump's tariff policies could lead to increased inflationary pressures in the near term as the impact of higher tariffs will be borne by US importers who will pass on the impact to consumers.

In addition to the interest rate decision, investors will also focus on the Fed's dot chart, which shows policymakers' collective forecasts for the medium- to long-term outlook for interest rates. At its December meeting, Fed officials projected two rate cuts by 2025. (Newsmaker23)

Source: FXstreet