Forex Today: Attention turns from the Middle East to the Federal Reserve

Market Overview for Wednesday, March 18

Midweek trading sees a more optimistic market sentiment, largely influenced by a decline in crude oil prices. Later today, attention will turn to the release of the US Producer Price Index (PPI) for February. Additionally, both the Bank of Canada (BoC) and the Federal Reserve (Fed) are set to reveal their latest monetary policy decisions.

On the geopolitical front, Iran confirmed on Tuesday that Ali Larijani, secretary of the Supreme National Security Council—referred to by Israel as "the de facto leader"—was killed in an Israeli airstrike. Early Wednesday, Israel launched further attacks on Beirut, Lebanon, and called for evacuations, while US forces deployed "deep penetrator" bombs against Iranian missile targets near the Strait of Hormuz.

Elsewhere, Reuters cited North Oil Company sources reporting that Baghdad and the Kurdistan Regional Government (KRG) have agreed to restart crude shipments from Iraq’s Kirkuk oilfields to Turkiye’s Ceyhan port. After climbing over 2% on Tuesday, West Texas Intermediate (WTI) crude prices have retreated, now trading near $93 per barrel—down roughly 2.5% for the day.

The US Dollar (USD) Index initially rose but reversed course during Tuesday’s US session, ending lower for a second consecutive day as risk appetite improved. Early Wednesday, the USD Index remains above 99.50, while US stock index futures post gains between 0.5% and 0.6%. The Fed is widely anticipated to keep rates steady after its March meeting, and will also release updated economic projections. Fed Chair Jerome Powell is scheduled to address the media at 18:30 GMT.

After a lackluster performance on Tuesday, USD/CAD is trading slightly higher above 1.3700. The BoC is expected to hold its policy rate at 2.25%.

Gold continues to consolidate, hovering just below $5,000 during Wednesday’s European session, following a directionless start to the week.

EUR/USD remains confined to a tight range near 1.1500 in early European trading. Later today, Eurostat will release updated figures for February’s Harmonized Index of Consumer Prices (HICP). The European Central Bank (ECB) is set to announce its policy decisions on Thursday.

GBP/USD extended its rebound for a second day on Tuesday, supported by risk-on flows, and is steady near 1.3350 early Wednesday. The Bank of England (BoE) is also expected to keep its policy rate unchanged in its upcoming announcement on Thursday.

USD/JPY faces mild downward pressure in European trading, slipping below 159.00. The Bank of Japan will reveal its interest rate decision during Thursday’s Asian session.