[MARKET ANALYSIS] DXY takes a breather after recent gains and heading into the FOMC, while NZD slumps on RBNZ's surprise pause

DXY: Flat

• Pauses overnight after gaining yesterday, albeit with a mixed performance vs. G10 peers as participants await a deluge of upcoming key events, including the FOMC decision and Fed Chair Warsh's press conference later today, while there were several recent data releases, in which durable goods, consumer confidence, and new home sales all topped forecasts, although Richmond Fed marginally disappointed.

EUR/USD: Flat

• Remains lacklustre after steadily declining throughout the past two days, with participants also awaiting the ECB later in the week, while ING thinks EUR/USD probably retains some downside risks at the current levels as the dominating USD leg may find a bit more support ahead of the FOMC.

GBP/USD: Flat

• Lingers at the prior day's trough and tests the 1.3300 level to the downside, with the attention in the UK turning to Chancellor Healey, who will deliver his first Budget today.

USD/JPY: Flat

• Take a breather after briefly reclaiming the 158.00 handle amid recent dollar strength and the mostly positive risk appetite, while markets await the approaching central bank announcements.

Antipodeans: AUD/USD +0.2% / NZD/USD -1.2%

• Mixed trade seen with AUD/USD briefly supported following the latest CPI data and hawkish RBA comments, while NZD/USD slumped following the surprise decision by the RBNZ to keep rates unchanged at 2.75% in a narrow 4-3 vote split.

Central-bank divergence is the dominant transmission channel, with the RBNZ's surprise hold at 2.75% compressing New Zealand's expected policy differential against both the US and Australia. The narrow 4-3 split distinguishes this from a clean dovish turn: internal dissent can keep the tightening option alive, leaving NZ front-end rates and the exchange rate especially sensitive to the accompanying guidance, minutes and subsequent inflation and labour data. The AUD/NZD cross is the cleaner expression of the immediate divergence given Australia's firmer CPI and hawkish RBA commentary, while NZD/USD also carries the broader dollar leg into the FOMC. A flat DXY after recent gains is consistent with the familiar pre-decision pattern in which position reduction tempers an established move, even after generally firm US activity and confidence data. The larger dollar response historically depends less on the rate decision itself when it is well anticipated than on changes to the projected path, the press-conference tone and the balance between inflation persistence and labour-market softness. Elsewhere, the UK Budget introduces a separate gilt risk-premium channel for GBP, while the ECB and Japanese policy calendar leave the major crosses exposed to event-driven repricing rather than a single directional USD impulse.