EUR/USD weakens below 1.2000 amid rebound in US Dollar, all eyes on Fed rate decision

• EUR/USD softens to around 1.1990 in Wednesday’s early European session.

• Concerns over the Fed’s independence could drag the US dollar lower. 

• Fed interest rate decision will take center stage on Wednesday. 

The EUR/USD pair attracts some sellers to near 1.1990, snapping the four-day winning streak during the early European session on Wednesday. The major pair retraces from a five-year high amid renewed US Dollar (USD) demand. All eyes will be on the US Federal Reserve (Fed) interest rate decision on Wednesday. 

US President Donald Trump said on Tuesday that he will announce his pick for the new Fed Chair soon, adding that interest rates will fall with the US central bank under new leadership. Traders worry that the Fed would lose its independence after the appointment of a Trump candidate as Fed Chairman. This, in turn, could weigh on the Greenback and act as a tailwind for the major pair. 

Markets are currently anticipating the US Federal Reserve's interest rate decision later in the day, with expectations that rates will remain unchanged in the current range of 3.50% to 3.75%. Traders will closely monitor the press conference for any guidance regarding future rate cuts. 

On the Euro’s front, European Central Bank (ECB) policymakers are in no hurry to adjust interest rates as inflation is hovering near the target. Officials did not discuss raising or cutting rates at the December meeting, emphasizing a data-dependent and meeting-by-meeting approach. Expectations for further rate reductions this year have largely vanished due to a mixed economic picture.