The Federal Reserve (Fed) will hold a two-day monetary policy meeting next week and announce its decision on March 19. Until then, the Fed will be in a blackout period, during which policymakers and officials will not be allowed to comment on the policy outlook.

According to the CME FedWatch Tool, the market sees little chance of a 25 basis point (bps) rate cut next week. The probability of a rate cut in May currently stands at around 40%.

Meanwhile, the Fed FXS Sentiment Index (FXS) remains in neutral territory, just below 100. Following its January meeting, the Fed left its policy settings unchanged, as widely anticipated. However, the policy statement adopted a cautious tone regarding further policy easing in the near term, citing uncertainty surrounding the impact of the policy change. In turn, the FXS Fed Sentiment Index rose above 120.

However, comments from Fed officials after the January meeting caused the FXS Fed Sentiment Index to turn lower.

In his last public appearance before the blackout period began, Fed Chair Jerome Powell noted that policy was not on a predetermined path. "We could maintain policy control longer if inflation progress stalls or eases if the labor market weakens unexpectedly or inflation falls more than expected," Powell noted. On a more dovish note, San Francisco Fed President Mary Daly said that rising uncertainty about the economy and policy could weigh on demand. She further argued that they should be cautious and prudent with monetary policy.

Meanwhile, the US Dollar (USD) has struggled to stay resilient against its rivals. Disappointing macroeconomic data releases, combined with US President Donald Trump's tariffs, have revived concerns about an economic downturn in the US and weighed heavily on the USD. The USD index, which tracks the performance of the USD against a basket of six major currencies, was last seen losing around 3.5% since the start of March, after dropping almost 1% in February.(Newsmaker23)

Source: FXstreet