Dollar Steadies Ahead of Fed Policy Decision

The dollar index held steady around 101.3 on Wednesday after a volatile start to the week, as investors awaited the Federal Reserve’s upcoming policy decision, where it is expected to leave interest rates unchanged. However, markets continue to price in about a one-third chance of a 25-basis-point rate hike, reflecting an unusually high level of uncertainty this close to a decision compared with recent years. Traders also see roughly an 80% probability of a rate increase in September, reinforcing expectations that borrowing costs could stay elevated. Meanwhile, investors also monitored rebounding oil prices and renewed inflation concerns after fresh hostilities flared in the Middle East. The US military said it had successfully intercepted what it described as a surprise Iranian attack targeting US troops stationed across the Middle East, reigniting regional tensions.

The dollar index softened to 101.3 on Tuesday after testing a 15-month high of 101.6 in the previous session as softer energy prices limited the outlook of a rate hike by the Federal Reserve this year. US officials stressed that a diplomatic resolution may still be achieved with Iran in their war, driving fuel prices to ease off their local peaks and trimming the risk of a rebound in energy inflation. Still, fuel prices remained elevated in a historical level as exports from the Middle East are still low. A portion of FOMC members had recently signaled that higher inflation and evidence of a robust labor market could warrant higher rates. The Federal Reserve is expected to hold its policy rates unchanged tomorrow, but rate futures continued reflect the consensus of a hike this year. The greenback held recent gains against the euro and the yen, although political volatility in the UK maintained the sterling's recent appreciation.

DXY increased to 101.60, the highest since June 2026. Over the past 4 weeks, Dollar Index gained 0.48%, and in the last 12 months, it increased 2.74%.