The first half of the day was marked by a strong US dollar. Expectations that the Fed will decide on its first rate hike in three years on Wednesday prompted market participants to adjust their positions in advance, and the US currency strengthened almost continuously. New inflation data provided additional arguments in favor of a hawkish decision, and, in my view, the committee simply has no room for maneuver. For Trump, who previously advocated a softer policy, such an outcome would be a significant political defeat, but the data is what it is.

The euro and pound came under pressure from two directions. The single currency is weakening not only because of the strength of the US dollar itself, but also because last week's ECB rate hike has already been priced in and is no longer influencing the market, while there are currently no additional factors supporting further euro growth. The pound is in a similar situation: without countervailing signals from the Bank of England, it remains dependent on the broader market sentiment toward the dollar, and I do not expect this dependence to weaken before the meeting itself.

No US economic data will be released in the second half of the day, which gives the dollar an opportunity to undergo a modest correction after its morning move. This could provide a brief respite for risk assets. However, I would not expect a trend reversal: the inflation figures are too strong an argument in favor of a rate hike for demand for the dollar to disappear quickly. In addition, the committee itself is divided, with some members taking a firm stance while others remain cautious, and this uncertainty could limit the extent of any correction. For the euro and pound, this means that the evening correction will most likely remain limited, while the main factor for both pairs will be the overall dynamics of the dollar rather than their own domestic news.

Momentum

For the euro, I am looking for a break above 1.1550, which could push the pair toward 1.1568 and then 1.1613. This scenario would be reasonable against the backdrop of the dollar's morning strength if that strength weakens earlier than expected or if the correction proves sharper than anticipated. The alternative scenario, a break below 1.1534, targets 1.1514 and 1.1486, and I consider this scenario more likely while the market remains focused on the Fed meeting and the broader expectation of further dollar strength.

For the pound, a break above 1.3502 opens the way toward 1.3531 and 1.3565, but without support from the Bank of England, a sustained rise will be difficult. A break below 1.3474 toward 1.3457 and 1.3435 appears more realistic, as the pound is currently following the dollar rather than being driven by its own market factors.

Mean Reversion

For the euro, I am watching 1.1555 on the upside and 1.1519 on the downside. Both levels are located within the range defined by the breakout points, and it seems reasonable to expect false breaks followed by a return into the range around these levels. If the price moves above 1.1555 and quickly reverses, this would indicate that the market is not yet ready to move further without new catalysts, while the lack of economic data in the evening only increases the likelihood of such a scenario. In this case, it would be reasonable to place the stop slightly above 1.1555 to avoid being caught by a genuine breakout if today's dollar correction proves stronger than expected.

For the pound, I am focusing on 1.3498 on the upside and 1.3475 on the downside. The range is narrower than for the euro, reflecting the fact that the pound is currently moving mainly in line with the dollar rather than being driven by its own factors. A false break above 1.3498 followed by a return into the range would fit the broader picture, in which the pair lacks its own catalysts for sustained movement. A test of the lower boundary at 1.3475 would require the evening dollar correction to be more pronounced than I currently expect; in such a situation, it would be reasonable to place the stop slightly below this level.