Dollar Edges Higher as Fed Rate Decision Takes Center Stage

The dollar edged higher on Monday (27th), but its overall movement remained within a range as investors braced for a series of important monetary policy developments this week. Early-week declines in oil prices helped ease inflation concerns and weakened demand for safe-haven assets.

In New York trading, the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, rose 0.1% to 101.52.

The dollar posted its best weekly performance in over a month last Friday, driven by escalating Middle East tensions that heightened expectations the central bank might raise interest rates to counter inflationary pressures from rising oil prices.

Markets widely expect the Federal Reserve (Fed) to hold rates steady on Wednesday, with the CME FedWatch tool indicating a roughly 62% probability of this outcome. However, rapidly shifting dynamics in the Middle East have kept the monetary policy outlook in flux this month. Oil prices surged about 20% over two weeks after the U.S. and Iran launched mutual attacks over control of the Strait of Hormuz.

Investors will also closely watch comments from Chair Kevin Warsh. Since the Fed’s last rate decision in June, Warsh’s remarks have generally been hawkish. He has emphasized the Federal Open Market Committee’s (FOMC) commitment to achieving price stability. Additionally, he has initiated a broad review of the central bank’s operations, establishing five working groups to examine issues including communication practices and the inflation framework.

This week’s economic data will provide further clues on monetary policy, with markets awaiting the U.S. second-quarter GDP figures and the June Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge.

Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said, “Since Chair Warsh took office, the Fed has ceased providing forward guidance, so financial markets may focus on the committee’s assessment of core inflation. The policy statement could again present a mixed picture of inflationary factors. On the positive side, relatively moderate home price and rent growth, along with the fading impact of 2025 tariff hikes, are favorable developments.”

“On the downside, however, renewed disruptions to exports from the Middle East and Russia are pushing energy prices higher; new tariffs are being introduced; AI-related demand is pressuring electronics prices; and labor supply bottlenecks are driving up prices for home healthcare and caregiving services.”

Adams added, “If the committee or Chair Warsh offers any policy signals, they will likely indicate that whether rates are held steady or raised in September will depend on upcoming economic data.”

Oil prices fell last Friday, putting downward pressure on the dollar. The decline followed a temporary pause in retaliatory attacks between the U.S. and Iran.

The New York Times reported last Friday that President Trump had paused plans to significantly escalate U.S. military action against Iran after meeting with senior advisors and senior government officials. The report cited U.S. officials stating the decision was primarily due to dwindling Pentagon stockpiles of air defense weapons.

Elsewhere, the euro was flat against the dollar at 1.1367. The euro had briefly risen earlier, supported by falling energy input costs that immediately eased pressure on eurozone economic growth, causing traders to temporarily downplay the impact of the European Central Bank’s (ECB) neutral policy stance last week.

The British pound fell 0.3% against the dollar to 1.3287. Markets continue to anticipate that the Bank of England (BOE) will maintain its gradual easing policy when it meets later this week.

The Japanese yen strengthened slightly, with USD/JPY down 0.1% to 163.76.

As of around 6:00 a.m. Taiwan time on Tuesday (28th):

The U.S. Dollar Index stood at 101.4997, down 0.0291%.

EUR/USD traded at 1.1370, up 0.0264%.

GBP/USD was at 1.3293, up 0.0452%.

AUD/USD was at 0.6990, up 0.0143%.

USD/CAD was at 1.4119, down 0.0354%.

USD/JPY was at 163.7100, down 0.0061%.