The US dollar paused its ascent on Wednesday, holding near a one-month high as traders awaited the Federal Reserve's interest rate decision. The dollar index, which measures the currency against a basket of peers, eased by 0.15% to 101.27 after touching 101.63 on Tuesday, its highest level since June 25. Investors largely remained on the sidelines, with markets pricing in a roughly 30% chance of a 25-basis-point interest rate hike by the Fed.
Analysts anticipate that while no immediate hike is expected, the Fed’s messaging will be crucial. Sim Moh Siong, a strategist at OCBC, noted that the Fed is shifting towards a more hawkish stance. If the Fed maintains current rates but delivers hawkish guidance, the dollar is likely to remain supported. Karl Schamotta, chief market strategist at Corpay, believes the setup is bullish for the dollar, either through an outright hike or a hawkish hold pushing expectations into September.
Other currencies experienced varied movements. The euro inched up 0.14% to $1.1401, nursing losses after falling to a one-month low. Sterling edged 0.06% higher to $1.3298, though it remained near its weakest level since July 1. The Australian dollar slid by 0.28% to $0.6954 after weaker-than-expected inflation data for the June quarter reduced the likelihood of further rate hikes from the Reserve Bank of Australia. The New Zealand dollar was up 0.06% at $0.5791.
The Japanese yen strengthened by 0.3% to 163.38 per dollar, but remained near a 40-year low, keeping traders alert for potential intervention from Japanese authorities. Hirofumi Suzuki, chief FX strategist at SMBC, suggested that the FOMC's decision and the Chair's press conference could further strengthen the dollar, possibly pushing USD/JPY to 164. Japanese financial authorities have intensified warnings, indicating that intervention is likely if the yen depreciates further following the Bank of Japan's Monetary Policy Meeting.
