Dollar Retreats from One-Month High as Markets Focus on Fed Decision

The U.S. dollar declined on Tuesday (28th), pulling back from a one-month high. Oil prices continued to fall, easing inflation concerns, and investors shifted focus to the U.S. Federal Reserve's (Fed) upcoming interest rate decision scheduled for Wednesday.

In late New York trading, the dollar index (DXY), which tracks the dollar against six major currencies, fell 0.1% to 101.42.

International oil prices dropped for a second consecutive day after surging approximately 20% over the past two weeks, as the U.S. and Iran maintained a ceasefire since the previous weekend.

President Trump told the media on Monday that the U.S. is having "good conversations" with Iran and believes there is a chance to reach an agreement ending months of conflict. However, he also warned that if diplomatic talks fail, the U.S. military will resume military strikes.

Market attention is now centered on the Federal Open Market Committee (FOMC) rate decision to be released on Wednesday, the Fed's fifth policy meeting this year. The market widely expects the Fed to hold interest rates steady.

According to the CME FedWatch tool, the probability of holding rates unchanged is around 69%.

However, due to ongoing changes in the Middle East situation, the monetary policy outlook for this month remains uncertain.

Investors will also closely monitor comments from Fed Chair Kevin Warsh. His statements since the June rate decision have been generally hawkish.

Goldman Sachs stated that due to recent volatile oil prices, this Fed meeting is "abnormally difficult to predict." Analysts noted that June's inflation data was relatively mild, reducing market support for an immediate rate hike. Additionally, the Fed has historically rarely raised rates suddenly without sufficient prior indication.

The current market estimates the probability of a rate hike at around 32%. Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management, said while a 32% chance of a rate hike is still low, it is significantly higher compared to the rate hike expectations before each meeting during former Chair Jerome Powell's tenure.

Euro Slightly Higher, Pound Flat

For other major currencies, the euro rose 0.2% against the dollar to 1.1388.

Traders are supported by Eurozone economic data such as the composite PMI, as well as the consistently hawkish comments from European Central Bank (ECB) officials, keeping the euro relatively strong, though it has not yet broken recent highs.

ECB member Peter Kazimir stated that even if Eurozone economic growth accelerates, a rate hike in September will still be necessary, indicating that European borrowing costs may remain high.

The British pound rose slightly to 1.3293 against the dollar. Markets await the Bank of England's (BoE) rate decision later this week.

The Japanese yen traded at 163.81 against the dollar, still hovering near multi-decade lows, reflecting the significant interest rate differential between Japan and the U.S.

As of around 6:00 a.m. Taiwan time on Wednesday (29th), prices were:

Dollar Index: 101.3770, -0.0427%

Euro to U.S. Dollar (EUR/USD): 1.1389, +0.0263%

British Pound to U.S. Dollar (GBP/USD): 1.3292, +0.0226%

Australian Dollar to U.S. Dollar (AUD/USD): 0.6973, 0.0000%

U.S. Dollar to Canadian Dollar (USD/CAD): 1.4101, -0.0496%

U.S. Dollar to Japanese Yen (USD/JPY): 163.7800, -0.0488%