The U.S. dollar gained notably on Wednesday after the Federal Reserve maintained its policy rate at 4.25%-4.50%. Fed Chair Jerome Powell struck a cautious yet balanced tone, noting rising short-term inflation pressures due to tariffs but reaffirming long-term inflation remains anchored. Treasury yields initially softened, reflecting market caution and expectations of a rate cut by July. Optimism persisted ahead of weekend U.S.-China trade talks and ongoing global monetary easing, including recent rate cuts from central banks in Czechia and Poland.

Trade Talks and Geopolitics in Focus

Treasury Secretary Scott Bessent highlighted ongoing but preliminary trade discussions with China and more advanced negotiations with other countries, reassuring investors about U.S. Treasury market stability. Geopolitical concerns rose as China's Xi Jinping traveled to Moscow for strategic talks with Russia's Putin, adding complexity to global market sentiment.

Euro Slips Amid Trade Concerns

EUR/USD moved lower by 0.50%, pressured by broad dollar strength and uncertainty around U.S.-EU trade negotiations. European Trade Commissioner Maros Sefcovic warned of potential retaliatory measures, dampening sentiment despite strong underlying euro call option demand. The pair remained within its 1.12-1.16 range.

GBP/USD Retreats Before BoE Decision

GBP/USD declined ahead of Thursday’s expected Bank of England rate cut, exacerbated by weak UK construction sector data, marking a fourth consecutive monthly contraction. Key technical support at 1.3256 (21-DMA) remains critical, with downside risks elevated if policymakers signal deeper economic concerns.

USD/JPY Advances; Commodities Fall

USD/JPY strengthened significantly (+0.99%) post-Fed decision, with resistance eyed at the Ichimoku conversion line (143.94). Commodities weakened amid cautious growth sentiment; oil fell 1.64%, gold declined 1.6%, and copper dropped sharply by 2.6%.

Currencies at close: EUR/USD -0.50%, USD/JPY +0.99%, GBP/USD +0.55%, AUD/USD -1.06%; Dollar Index +0.61%.