The dollar index has stabilized near a four-week high ahead of the Fed's decision
The dollar is holding near its highs ahead of the Fed's decisions / Photo: Rrraum / Shutterstock
The U.S. Dollar Index stabilized near a four-week high on Tuesday, July 28, according to Reuters. Traders in the foreign exchange market are trying to assess the likelihood of an interest rate hike by the U.S. Federal Reserve (Fed), whose meeting begins on Tuesday. Meanwhile, the drop in oil prices has provided some relief regarding inflation.
Details
The dollar index, which measures the dollar’s value against a basket of currencies including the yen and the euro, held steady at 101.58 after reaching its highest level since July 1, according to Reuters. The euro rose 0.05% to $1.137. Against the Japanese yen, the dollar traded at 163.9, while the British pound strengthened by 0.1% to $1.33.
Net long positions in the dollar reached their highest level since 2015 over the past week, Reuters reported, citing data from a U.S. regulator.
The dollar’s resilience reflects a sharp shift in expectations regarding the Fed over the past few months. Treasury yields have been rising steadily since April: the conflict between the U.S. and Iran has heightened inflation fears, while Fed Chair Kevin Warsh’s “hawkish” debut has reinforced expectations of higher interest rates, Reuters explains. Although oil prices fell after the U.S. suspended strikes against Iran over the weekend, Treasury yields remain near multi-month highs.
What Analysts Are Saying
"The trend in U.S. yields provides a very convincing explanation for the dollar's movements," said Dominic Banning, head of G10 currency strategy at Nomura in London.
According to him, there is a risk that investors have become overly confident that a rate hike is imminent, which means that any “dovish” outcome could prompt traders to close their long positions in the dollar.
According to LSEG, markets are pricing in a nearly 40% probability of a 25-basis-point rate hike on Wednesday, July 29, compared with about 20% a week ago. Traders estimate the probability of a rate hike by September at nearly 95%, Reuters reports.
This article was AI-translated and verified by a human editor
