Fed Tightening Cycle Expected as Euro Trades Cautiously Ahead of Policy Meeting

The Euro (EUR) has been trading cautiously against the US Dollar (USD) ahead of the Federal Reserve's (Fed) monetary policy announcement. The EUR/USD pair is currently trading at around 1.1535.

The odds of the Fed hiking interest rates by 25 basis points to 3.75%-4.00% at the policy meeting later in the day are 92.5%, according to the CME FedWatch tool. This suggests that the Fed will break its five-meeting hold streak and kick-off the monetary tightening cycle.

Investors will be closely watching Chairman Kevin Warsh's remarks on inflation and the economic outlook, as well as the Fed's dot plot, which shows where policymakers see interest rates heading in the near term. A nearly 79% chance exists that the Fed will deliver at least two interest rate hikes by the year-end.