The main event of this week will be the upcoming Fed decision on monetary policy. Today, it will Already become clear whether the Federal Reserve will lower the interest rate and what actions should be expected from it in the future.

Although the market expects the US Central Bank to cut interest rates a second time this year, the USD/JPY pair is still trading near monthly highs. Typically, a decrease in interest rates leads to a weakening of the national currency. However, as the aggressive rebound of the euro against the backdrop of a large-scale stimulus package by the ECB has shown, it may not be so simple in reality. One of the main drivers of increased demand for the dollar against the yen is market expectations in anticipation of the meeting of the US Central Bank. The market has fully taken into account the quotes and its prospects for lowering the federal funds rate by 0.25%. However, the Fed may not go beyond this framework.

Since the FOMC meeting in July, both positive and negative changes have occurred in the US economy. Growth in retail sales, employment, and activity in the manufacturing sector slowed, and consumer sentiment worsened. At the same time, the base consumer price index in annual terms is at the level of 2.4%, which is equal to the peaks of 2018. Unemployment is close to the minimum values over the past 5 years. Last week's economic releases speak in favor of the Fed taking an even more wait-and-see stance. According to the latest report on the US labor market in August, job growth slowed while average hourly wages accelerated.

Despite the fact that lowering the federal funds rate this month is already considered a settled issue, the signals that Fed chairman Jerome Powell will send to the markets at the end of the next FOMC meeting can help the dollar rather than harm it. The tone of the accompanying statement may be more hawkish than expected.

If Jerome Powell is optimistic about lowering the federal funds rate, indicating that this is a correction of monetary policy in the light of the existing risks instead of changing it, then the USD/JPY pair will break 109 and the EUR/USD pair will fall below 1.10. If the head of the Fed declares the need for further easing of monetary policy, allowing for a reduction in interest rates in December, then the pair USD/JPY pair will test the level of 107. As for the EUR/USD pair, it will rise above the base of the 11th figure.