The dollar held near a one-month high on Wednesday as currency desks waited for the Federal Reserve to close its two-day policy meeting. The Australian dollar fell 0.44% after domestic price data cooled faster than expected, while renewed Middle East hostilities lifted crude and kept a hawkish Fed in play.
The U.S. dollar held near a one-month high on Wednesday, anchored by expectations that the Federal Reserve could adopt a hawkish stance to counter persistent inflation risks. The Dollar Index hovered around 101.30, down 0.1%, holding close to its highest level in four weeks as currency desks braced for the conclusion of the Fed's two-day monetary policy meeting later in the day.
Euro and sterling hold their ranges before central bank decisions
Trading across major currency pairs was cautious and rangebound. The euro edged slightly higher to around $1.139 after bouncing off a one-month low in the previous session. Sterling was similarly subdued, hovering near its lowest levels since early July ahead of the Bank of England's rate decision later in the week.
Australian dollar breaks ranks after price data cools
The Australian dollar moved against that pattern. It fell 0.44% against the greenback after Australian inflation figures cooled faster than expected, curbing market expectations for another rate hike by the Reserve Bank of Australia.
Middle East escalation lifts crude and keeps a Fed hike on the table
The dollar's underlying strength comes as renewed Middle East hostilities and rising energy prices inject fresh geopolitical risk premiums into global foreign exchange markets. Joint U.S. and Saudi airstrikes on Iran-backed groups in Iraq and subsequent Iranian missile launches sent crude prices jumping over 3%, threatening to reignite energy-driven inflation. With oil prices elevated, money markets continue to price in roughly a 33% probability that the Federal Reserve could deliver a surprise 25-basis-point rate increase on Wednesday, even though policymakers are widely expected to keep benchmark rates unchanged.
Positioning is the other variable. According to Philip Wee, senior FX strategist at DBS, "Markets remain divided over whether Fed Chair Kevin Warsh will validate recent dollar strength" after investors accumulated long dollar positions on expectations that higher oil prices could keep inflation elevated. He added that those positions could unwind if the Fed fails to deliver a sufficiently hawkish message or signal another rate increase in September.
Focus across European foreign exchange desks will pivot quickly after the Fed decision, with both the Bank of England and the Bank of Japan scheduled to deliver policy updates later in the week.
Source: Investing.com
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