• The USD rebounds from a four-year low as bears lighten their bets ahead of the FOMC decision.
• Traders will look for cues about the Fed’s rate-cut path before positioning for the next leg down.
• Renewed Fed independence worries and uncertainty over Trump's decisions might cap the buck.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts some buyers during the Asian session on Wednesday and reverses a part of the overnight slump to the lowest level since February 2022. The index retakes the 96.00 mark in the last hour, though the fundamental backdrop warrants some caution before positioning for any meaningful appreciation ahead of the key central bank event.

The US Federal Reserve (Fed) is scheduled to announce its decision later today and is expected to keep interest rates unchanged at the end of a two-day meeting. The focus, meanwhile, will be on the post-meeting press conference, where comments from Fed Chair Jerome Powell will be scrutinized closely for cues about the policy path amid bets for at least two more rate cuts in 2026. The outlook, in turn, will play a key role in determining the next leg of a directional move for the US Dollar (USD).

The attempted USD recovery, however, runs the risk of fizzling out quickly as evolving efforts to fire Fed Governor Lisa Cook fuel worries about the central bank's independence. Meanwhile, US President Donald Trump said on Tuesday that he will soon announce his pick to serve as the Fed Chair, and predicted interest rates would decline after the new chair takes over. Adding to this, heightened economic and policy risk linked to Trump's trade and geopolitical decisions should cap the USD gains.

Hence, Wednesday's move up could be attributed to some repositioning trades as bears opt to lighten their bets heading into the highly-anticipated Fed rate decision. Even from a technical perspective, the recent breakdown below the 97.20-97.00 pivotal support was seen as a key trigger for bearish traders and suggests that the path of least resistance for the USD remains to the downside. This, in turn, backs the case for the emergence of fresh selling at higher levels.