Fed Decision, Tech Earnings and Market Risks in Focus

The EUR/USD pair traded with a positive tone near the 1.1390 level during Wednesday's Asian session, marking a second consecutive day of gains as the US Dollar remained under pressure ahead of the Federal Reserve’s highly anticipated policy announcement. While the Fed is widely expected to keep interest rates unchanged, investors remain alert for any signals regarding the future path of monetary policy.

Markets continue to reflect an unusual degree of uncertainty, with traders assigning a 30.5% probability of an immediate rate hike despite expectations for no change at this meeting. Looking ahead, markets also see a strong likelihood of tighter policy in September, reinforcing the view that US interest rates may stay elevated for longer.

The US Dollar could still find some support from ongoing geopolitical tensions in the Middle East, which continue to underpin safe-haven demand and keep inflation concerns in focus. Investors are also assessing the potential impact of higher energy prices on the broader economic outlook and future central bank decisions.

Meanwhile, the Euro remains supported after the European Central Bank left interest rates unchanged at its July meeting while signaling that a rate increase in September remains a likely outcome. Policymakers highlighted that persistently high energy costs could fuel broader inflationary pressures, reinforcing expectations that the ECB may resume policy tightening later this year.

Gold prices remained under pressure for a second consecutive session, trading near the $4,020 per ounce level during Wednesday's Asian session. The precious metal continued to face headwinds as rebounding oil prices and renewed geopolitical tensions in the Middle East fuelled inflation concerns, reducing demand for non-yielding assets.

Investor attention remains firmly on the Federal Reserve's policy decision later in the day. While the US central bank is widely expected to leave interest rates unchanged, markets continue to reflect an unusually high degree of uncertainty.

Traders are pricing in a 30.5% probability of an immediate rate hike, while expectations for additional tightening remain elevated, with markets assigning a 76.6% chance of a rate increase at the September meeting.

At the same time, developments in the Middle East remain in focus after renewed military tensions reignited concerns over potential energy supply disruptions. Higher oil prices have reinforced fears that inflationary pressures could persist, supporting expectations that interest rates may remain higher for longer, a backdrop that continues to weigh on gold prices.

Oil prices climbed sharply during Wednesday's Asian session, extending recent gains as escalating geopolitical tensions in the Middle East heightened concerns over potential supply disruptions. Market sentiment was also supported by signs of tighter US crude supplies and expectations that OPEC+ could pause planned production increases later this year.

Brent crude advanced toward the $87.40 per barrel level, while West Texas Intermediate (WTI) rose above $82.30, with both benchmarks gaining nearly 4%. The move followed renewed military developments involving the United States, Saudi Arabia and Iran, which reduced expectations for a near-term easing of tensions and reinforced fears over the security of regional energy infrastructure.

Adding to the bullish sentiment, industry data showed US crude inventories declined by approximately 3.3 million barrels during the week ended July 24, pointing to firm demand and tighter supply conditions ahead of official government data later in the day.

Meanwhile, investors are also monitoring reports that OPEC+ could suspend further production increases for three months beginning in October after completing the scheduled return of previously curtailed output. Such a move would help keep global oil supplies relatively tight, providing additional support to crude prices.

US stocks closed mixed on Tuesday as solid corporate earnings and easing oil prices helped offset continued weakness in the technology sector ahead of the Federal Reserve’s latest policy announcement.

Technology shares continued to struggle following renewed concerns over AI-related spending and growing competition from China’s semiconductor industry. Chipmakers and memory-related companies led the declines, weighing on the broader technology sector, although gains in defensive sectors such as consumer staples and healthcare helped support the wider market.

Corporate earnings remained a key source of optimism. Several major companies posted stronger-than-expected quarterly results, with firms including Coca-Cola, Boeing, Sherwin-Williams and PayPal recording notable gains after reporting upbeat earnings and, in some cases, improving their outlooks. Apple also advanced, briefly becoming the first company to reach a market valuation above $5 trillion during the session.

Investors are now turning their attention to a pivotal day for financial markets, with the Federal Reserve's policy decision, Chair Kevin Warsh’s press conference, and quarterly results from Microsoft and Meta all due later on Wednesday. Market participants will be looking for fresh guidance on the interest rate outlook, while closely monitoring whether major technology companies continue to justify their elevated AI investment plans through strong earnings and future spending guidance.