While the US dollar has been actively losing ground against a number of risk assets, including the euro and the pound sterling, traders are preparing to hear from Federal Reserve Chair Jerome Powell about how the US central bank assesses a range of economic risks amid the US-Israel war with Iran.

Fed policymakers are expected to keep the policy rate unchanged for a second consecutive meeting in the 3.50%–3.75% range. However, they will almost certainly discuss how the Middle East war could pressure both sides of their mandate — and whether responding to a risk of economic slowdown could stoke inflation, which has exceeded the Fed's target for five years running.

Markets will be watching closely for any hints about the Fed's future policy path. Inflation concerns, fuelled by the ongoing conflict and its impact on energy markets, remain a key factor. Investors hope that Powell will clarify whether rate cuts are still on the table after clear signs of cooling growth this year. Uncertainty on that point is adding to financial?market volatility and making the dollar less attractive as a safe haven.

The dollar's drop against the euro and the pound reflects a shift in investor risk appetite. Any easing of geopolitical tensions — or at least expectations that tensions will stabilize, as suggested by Trump's comments — could help those currencies. Expectations of a softer Fed policy would also make assets denominated in euros and pounds relatively more attractive versus dollar assets.

"Whenever the Fed's dual mandate pulls it in two directions, that leads to fierce debate," KPMG said. "The reality is the US cannot afford, like some other central banks, simply to ignore inflation, given that five years have already passed and the risks of stronger inflation grow by the day."

The Federal Reserve will publish its statement at 14:00 Washington time on Wednesday, with Powell holding a press conference 30 minutes later.

A separate focus will be on the new economic projections. Officials will release fresh forecasts that may show how they interpret recent data and geopolitical events. Economists expect two quarter-point rate cuts this year, up from a single cut forecast in December.

Recall that the latest data released after the January Fed meeting showed inflation in the US remained high even before the Middle East conflict triggered a sharp rise in oil prices. US nonfarm payrolls have been mixed — a strong January employment report was followed by an unexpected drop in February. After the latest update, Q4 2025 GDP growth was halved to 0.7% from 1.4%. New official projections for inflation, GDP and unemployment will therefore provide insight into how policymakers think the oil shock will affect the economy in the longer term.

Technical outlook on EUR/USD

Buyers now need to reclaim 1.1550. Only that will open a test of 1.1585. From there, the currency pair could climb to 1.1610, but doing so without support from major players will be difficult. The more distant upside target is 1.1635. On the downside, I expect significant buyer interest only around 1.1520. If there is no buying there, it would be prudent to wait for a new low at 1.1485 or to open long positions from 1.1440.

Technical outlook on GBP/USD

Pound buyers should take the nearest resistance at 1.3375. Only that would allow a push to 1.3410, above which a further breakout will be difficult. The more distant upside target is around 1.3440. On the downside, bears will try to seize control at 1.3350. If they succeed, a break of that range would deal a heavy blow to bulls and could push GBP/USD down to 1.3320 with potential to extend to 1.3300.