The US dollar index was relatively stable on Wednesday, as investors adopted a cautious stance ahead of the Federal Reserve’s policy decision.
Treasury yields remained firm as markets awaited fresh guidance that could reshape expectations and trigger volatility across both rates and currencies.
While the Fed is expected to keep interest rates unchanged, the focus will be firmly on its assessment of the economic impact of the ongoing Middle East conflict and any signals regarding the monetary policy path.
Powell’s communication will be particularly important in clarifying whether recent energy-driven inflation risks warrant a more cautious stance.
Beyond monetary policy, geopolitical developments continue to provide an underlying layer of support for the dollar. Negotiations between the US and Iran continue to see slow progress. This deadlock sustains uncertainty, reinforcing safe-haven demand for the dollar, while the prolonged closure of the Strait of Hormuz and elevated energy prices fuel inflation concerns and support Treasury yields.
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