• EUR/USD recovers modestly as traders await Fed's interest rate decision.
• Oil-driven inflation fears and strong US PPI lift yields, supporting the Dollar
• Fed guidance in focus as rate-cut bets fade.

EUR/USD recovers part of its earlier decline on Wednesday as the US Dollar (USD) eases slightly from daily highs, offering modest support to the Euro (EUR) ahead of the Federal Reserve’s (Fed) interest rate decision at 18:00 GMT.

At the time of writing, the pair is trading around 1.1518 after briefly slipping below the 1.1500 mark during the European trading session.

Earlier in the day, the Greenback found support after reports of an attack on Iran’s South Pars gas field, adding fresh stress to already rattled energy markets amid the ongoing US and Israeli conflict with Iran. The latest escalation has intensified inflation concerns, fueling expectations that the Fed will keep borrowing costs elevated for longer.

At the same time, stronger-than-expected US Producer Price Index (PPI) data reinforced that view. Headline PPI rose 0.7% MoM in February, up from 0.3% in January and above the 0.5% forecast, while the annual rate accelerated to 3.4% YoY from 2.9%. Core PPI also beat expectations, increasing 0.5% MoM and 3.9% YoY.

In light of the latest developments, US Treasury yields edged higher, underpinning the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.77, up 0.22% on the day.

Meanwhile, traders showed a muted reaction to the Eurozone inflation data. The Core Harmonized Index of Consumer Prices (HICP) rose 0.8% MoM, unchanged from January, while the annual core rate held steady at 2.4%, in line with market expectations.

The headline HICP increased by 0.6% on a monthly basis, slightly below the 0.7% recorded in January, while the yearly rate remained unchanged at 1.9%, matching forecasts.

Attention now shifts to the Fed’s monetary policy announcement, with the central bank widely expected to keep interest rates unchanged at 3.50%-3.75% for a second consecutive meeting. With the decision largely priced in, traders will focus on Fed Chair Jerome Powell’s forward guidance for clues on the future path of monetary policy.

Concerns over Oil-driven inflation have prompted a sharp repricing of rate-cut expectations in recent weeks. Before Middle East tensions erupted, markets were pricing in at least two rate cuts in 2026. However, that outlook has since shifted, with traders now expecting rates to remain on hold for longer and not even fully pricing in a single 25 bps cut.

Focus will also turn to the updated Summary of Economic Projections (SEP), particularly the dot plot, to see whether the Fed maintains its earlier projection of one rate cut in 2026 or shifts toward a more restrictive stance.