Dollar Index DXY rises around 104.00 level ahead of Fed decision

• The DXY Dollar Index gains strength and rises towards the 104.00 level in the early stages of the European session on Wednesday.
• The Fed is likely to keep interest rates unchanged for the fifth consecutive time at its March meeting.
• Persistent inflation and strong US labor market data indicate the country could delay the rate cut cycle.
• Investors await the Fed's interest rate decision and press conference on Wednesday.

The DXY Dollar Index is trading positive for the fifth day in a row, near multi-week highs, during the early hours of the European session on Wednesday. The rise in the dollar is supported by growing speculation that the Federal Reserve (Fed) will maintain its high interest rate talk for longer, as inflation in the US remains elevated. Investors await the Fed's monetary policy meeting and press conference on Wednesday for fresh catalysts. At the time of writing, the DXY index is trading at 104.09, up 0.26% on the day.

The US Fed is expected to keep interest rates unchanged at 5.25% to 5.5% at its March meeting. Financial markets believe the first rate cut will most likely occur in June, but may not come until July. Following the meeting, investors will closely monitor Fed Chair Jerome Powell's press conference, which could provide insight into the timing and number of rate cuts to expect in 2024. Some hawkish comments from the Fed could provide some support to the US dollar in the short term.

US economic data in recent weeks suggests that US inflation is declining from its peak levels, but still above the 2% target. Furthermore, strong labor market data indicated that the US would not need to cut rates to avoid a recession. Fed Chairman Jerome Powell stated that lowering interest rates too soon could trigger a spike in inflation and cause more pain for consumers. The Fed is expected to stick to its forecasts, insisting it needs more evidence that inflation is on a sustainable path toward its 2% target before cutting rates.

Looking ahead, market participants will closely monitor the Fed's interest rate decision, which is due out later on Wednesday, along with the press conference and the Summary of Economic Projections, or “dot plot.” “. Preliminary S&P Global PMI data for March will be released on Thursday. Investors will look at this data and find trading opportunities around the DXY Dollar Index.