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United States Dollar Index remains subdued near 101.50 amid Fed policy uncertainty

  • US Dollar Index remained flat amid a rare level of uncertainty heading into a Fed decision.
  • Traders expect the Federal Reserve to hold interest rates steady this week, with possible hikes delayed to September.
  • Donald Trump warned military strikes against Iran could resume if diplomatic negotiations collapse.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground after three days of gains and trading around 101.50 during the Asian session on Tuesday.

The Greenback moves little amid market caution ahead of the Federal Reserve’s policy decision on Wednesday. According to the CME FedWatch Tool, markets are pricing in nearly a 38% chance of a rate hike in July, an unusually high level of uncertainty so close to a meeting. Citadel Securities expects the Fed to deliver a rate increase to solidify Chairman Kevin Warsh’s inflation-fighting credibility following his repeated promises to restore price stability. Looking further ahead, the probability of at least a 25-basis-point hike in September currently sits at approximately 81.4%.

President Donald Trump stated that the US is engaged in “good talks” with Iran to resolve the Middle East conflict. While Washington suspended its 13-night strike campaign over the weekend, leading to three consecutive days without attacks. Tehran’s foreign ministry countered that no direct negotiations with the US are taking place, noting its only active dialogue is with Oman regarding the future of the Strait. Even so, the diplomatic developments helped push oil prices down, easing broader inflation and monetary policy concerns.

Washington suspended its 13-night strike campaign over the weekend, leading to three consecutive days without attacks. Tehran’s foreign ministry countered that no direct negotiations with the US are taking place, noting its only active dialogue is with Oman regarding the future of the Strait.

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Japanese Yen flattens against US Dollar while Fed’s policy takes centre stage

  • USD/JPY flattens at around 163.75 in the countdown to the Fed’s monetary policy.
  • The Fed and the BoJ are expected to hold interest rates steady.
  • The BoJ will likely maintain hawkish monetary policy guidance.

The Japanese Yen (JPY) trades flat against the US Dollar (USD) at around 163.75 during the Asian trading session on Tuesday. The USD/JPY pair struggles for direction as investors have sidelined ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally lower to near 101.46.

According to the CME FedWatch tool, traders see a 62% chance that the Fed will leave interest rates unchanged in the range of 3.50%-3.75%. The tool also shows a strong possibility of an interest rate hike in the September policy meeting.

Investors should not expect any guidance on the interest rate outlook in the monetary policy statement and Chairman Kevin Warsh’s press conference, as he clarified in the last meeting that “so-called forward guidance is not well-suited in the current policy juncture”.

Market participants would like to know for how long the United States (US) inflation will stay above the central bank’s 2% target.

On the Tokyo front, investors also await the Bank of Japan (BoJ) monetary policy announcement on Friday. The BoJ is expected to leave interest rates unchanged at 1% and deliver hawkish remarks on the monetary policy outlook.

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New Zealand Dollar struggles above mid-0.5700s as USD stays firm ahead of FOMC meeting

  • NZD/USD struggles to capitalize on a modest Asian session rise amid a bullish USD undertone.
  • Geopolitical uncertainties continue to underpin the safe-haven buck and weigh on spot prices.
  • Traders, however, seem hesitant and move to the sidelines ahead of the crucial FOMC meeting.

The NZD/USD pair turns lower for the second consecutive day following a modest Asian session uptick to the 0.5785 region on Tuesday. Spot prices currently trade around the 0.5770-0.5765 area, just above last week’s swing low, as the US Dollar (USD) retains its bullish undertone amid geopolitical uncertainties.

The US paused its bombing campaign against Iran following roughly two weeks of strikes. Moreover, US President Donald Trump said on Monday the US was having good talks with Iran and that there was a chance of a resolution. This raised hopes of pulling the US and Iran back to the negotiating table, though the optimism fades rather quickly after Saudi Arabia, Jordan and Iraq reported drone attacks. Moreover, Trump warned that US strikes would resume if the negotiations failed to deliver, helping the safe-haven USD preserve its recent strong gains back closer to the monthly high, which continues to weigh on the NZD/USD pair.

Traders, however, seem hesitant to place aggressive bets ahead of the highly anticipated two-day FOMC policy meeting, starting later today. The US Federal Reserve (Fed) will announce its decision on Wednesday and is expected to leave rates unchanged. Hence, the focus will be on the accompanying policy statement and the post-meeting press conference. Investors will look for cues about the Fed’s future policy path, which will influence the Greenback and drive the NZD/USD pair. In the meantime, firming expectations that the Reserve Bank of New Zealand (RBNZ) will deliver another rate hike in September could support the New Zealand Dollar (NZD).

Strategists at Brown Brothers Harriman argue that “above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes which is NZD supportive.” They note that at its 8 July meeting, the RBNZ lifted the Official Cash Rate by 25bp to 2.50% and signalled that “further OCR increases appear likely at upcoming meetings.” Reflecting this hawkish bias, BBH highlight that “the swaps curve price in 60bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50% – near the top of the RBNZ estimated neutral range (2.20%-4.10%).”

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AUD/USD Price Forecast: Slides to 0.6970 after failing to clear 38.2% Fibo. hurdle

  • AUD/USD meets with a fresh supply as geopolitical risks remain supportive of a bullish USD undertone.
  • Bulls shrug off RBA Governor Bullock’s comments as the focus remains on the FOMC policy meeting.
  • The mixed technical setup warrants some caution before placing aggressive directional bets on the pair.

The AUD/USD pair attracts some follow-through selling following the previous day’s failure to find acceptance above the 0.7000 psychological mark and weakens to the 0.6970 area during the Asian session on Tuesday. Spot prices move little in reaction to Reserve Bank of Australia (RBA) Governor Michele Bullock’s comments and remain confined in a familiar range held over the past two weeks or so.

The US Dollar (USD) sticks to its bullish undertone as the optimism over a potential US-Iran diplomacy to end a five-month-old conflict fades after Saudi Arabia, Jordan and Iraq reported drone attacks on Monday. This keeps geopolitical risk premium in play and acts as a tailwind for the safe-haven Greenback, exerting some downward pressure on the AUD/USD pair. Traders, however, might refrain from placing aggressive bets ahead of the crucial two-day FOMC policy meeting, starting later today.

The recent repeated failures to break through the 38.2% Fibonacci retracement level of the May-June downfall suggest that the recovery from the 200-day Simple Moving Average (SMA) has run out of steam. That said, the Moving Average Convergence Divergence (MACD) histogram remains marginally positive while the MACD line stays above the signal line, hinting that bullish momentum persists even as the neutral Relative Strength Index (RSI) suggests only modest directional conviction.

Hence, it will be prudent to wait for some follow-through selling below the 23.6% Fibo. level before placing fresh bearish bets on the AUD/USD pair and positioning for a retest of the 200-day SMA at 0.6904. This is followed by the 0.6868 Fibonacci anchor, which reinforces a deeper structural floor should a corrective pullback unfold. On the topside, initial resistance is aligned with the 38.2% Fibo. retracement at 0.7024 ahead of the 50% retracement at 0.7073 and then 0.7121 at the 61.8% Fibo. level.

AUD/USD daily chart

Chart Analysis AUD/USD
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Indian Rupee gains further as oil prices extend losses

  • The Indian Rupee adds more gains due to further weakness in oil prices.
  • US President Trump confirms that strikes on Iran have halted to open the door to diplomacy.
  • India’s GDP growth will likely slow down to 6.6% YoY this year.

The Indian Rupee (INR) extends its winning streak against the US Dollar (USD) for the third trading day on Tuesday. The USD/INR pair falls to near 95.65 as a further decline in oil prices has strengthened the Indian currency.

In the opening trade, the MCX Crude Oil contract expiring on August 19 trades 1.4% down at around Rs. 7,848, the lowest level seen in a week.

Given that India meets 85% of its energy demand through imports, a steep decline in oil prices reduces foreign outflows from India and hence improves the appeal of the Indian Rupee.

Trump confirms Iran negotiating with US

On Monday, United States (US) President Donald Trump said that Iran is talking to Washington about a deal and said “reaching one is possible”. Trump added that there’s plenty of time to reach a deal with Iran and that “we’ll see what happens”, Axios reported. Trump added that he halted strikes on Iran to open the door to diplomacy, while maintaining the stance of expanding military aggression if talks failed.

The pause in the exchange of attacks between the US and Iran has resulted in a sharp decline in oil prices. However, it doesn’t mean that the energy supply is returning to normal, with the Strait of Hormuz remaining closed.

Countdown to Fed’s policy starts

This week, the major trigger for financial markets will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.

According to the CME FedWatch tool, traders see a 62% chance that the Fed will leave interest rates unchanged in the range of 3.50%-3.75%. The tool shows a strong possibility of an interest rate hike in the September policy meeting.

However, US President Trump urged Fed Chairman Kevin Warsh to lower interest rates, adding that there was a good inflation report recently, costs were falling rapidly, and that prices should drop significantly once the Gulf War ends.

Experts warn of slower India’s GDP growth

According to the latest Reuters poll, India’s Gross Domestic Product (GDP) is forecast to grow 6.6% Year-on-Year (YoY) in the fiscal year ending March 2027, down from 7.7% in FY2025-26. Growth is then expected to edge up to 6.8% in FY2027-28. The report showing poll results also revealed that weak private investment and higher oil prices will weigh on India’s economic growth.

Going forward, the major trigger for the Indian currency will be the Reserve Bank of India’s (RBI) monetary policy announcement next week.

Technical Analysis: USD/INR falls below 20-day EMA

USD/INR trades lower at around 95.65, holding in a corrective phase after recent gains as it slips just under the 20-day exponential moving average (EMA), which is at 95.93. The loss of this short-term average as immediate resistance hints that upside momentum is fading, while the Relative Strength Index (RSI) at 50.6 sits near neutral territory, suggesting a consolidative rather than impulsive tone for now.

On the topside, the 20-day EMA at 95.9278 is the first barrier that bulls would need to reclaim to revive a more constructive bias and open the way for a retest of all-time highs around 97.10. Looking down, the 95.00 level will be the key support area.

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Swiss Franc slips against the US Dollar on diverging monetary policy expectations

  • USD/CHF climbs to its highest level since June 2025, extending its advance for a sixth consecutive day.
  • The Swiss Franc slips after Bloomberg reports the SNB may maintain zero interest rates through 2027.
  • Markets await the Federal Reserve’s interest rate decision on Wednesday.

USD/CHF climbs to fresh highs since June 2025 on Monday after Bloomberg reported that the Swiss National Bank (SNB) could keep its policy rate at zero until the end of 2027. The SNB later declined to comment on the report, according to Reuters. At the time of writing, the pair trades around 0.8187, extending its gains for a sixth consecutive day.

Swiss inflation remains subdued and comfortably within the SNB’s 0%-2% price-stability range. Elevated Oil prices since the US-Iran war began have increased near-term inflation risks, but the impact has been far more contained in Switzerland than in the United States.

The Bloomberg report noted that the outlook is based mainly on current inflation forecasts and assumes no major new shocks, citing people familiar with the thinking inside the central bank.

Diverging monetary policy expectations keep USD/CHF tilted to the upside in the near term. While the SNB is expected to keep rates at zero, traders increasingly expect the Federal Reserve (Fed) to raise interest rates later this year to curb inflation.

The Fed announces its monetary policy decision on Wednesday and is widely expected to leave interest rates unchanged at 3.50%-3.75%. However, traders still price in a 33% chance of an immediate hike, while the probability of a rate increase in September stands near 81%, according to the CME FedWatch Tool.

The wide interest-rate gap between the two countries favours the US Dollar (USD). Meanwhile, the Greenback has also emerged as the preferred safe-haven currency during the US-Iran war, while the SNB’s readiness to curb excessive strength in the Swiss Franc limits demand for the currency.

A temporary pause in attacks between the United States and Iran initially weighed on the US Dollar earlier in the day. However, the optimism faded as the prospects of a peace agreement appear slim.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.47, recovering from an intraday low of 101.12.

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Japanese Yen firms as easing tensions weigh on USD before Fed, BoJ

  • The Japanese Yen strengthens against the US Dollar as tensions between the United States and Iran ease.
  • Investors await this week’s monetary policy decisions from the Federal Reserve and the Bank of Japan.
  • US Durable Goods Orders disappoint expectations, limiting support for the US Dollar.

USD/JPY edges lower on Monday and trades around 163.70 at the time of writing, down 0.09% on the day, as the US Dollar (USD) comes under pressure from improving risk sentiment following the latest geopolitical developments. Market mood improved after Washington and Tehran confirmed they had paused attacks against each other, reviving hopes for renewed diplomatic efforts between the two countries.

The US Dollar’s weakness is also reflected in the US Dollar Index (DXY), which remains in negative territory, while US equities are moving higher, highlighting a more favorable environment for risk assets.

Market participants are now turning their attention to this week’s monetary policy decisions from the Federal Reserve (Fed), due on Wednesday, and the Bank of Japan (BoJ), scheduled for Friday. Both central banks are widely expected to leave interest rates unchanged. Investors will mainly focus on the tone of policymakers, after Fed Chair Kevin Warsh recently stated that forward guidance is not well suited to the current policy environment.

In Japan, investors continue to expect the BoJ to maintain a gradual tightening bias. According to a recent Reuters poll, a large majority of economists expect the central bank to deliver another interest rate hike by the end of the year, supporting expectations for a continued normalization of Japanese monetary policy.

US economic data released on Monday also provided only limited support for the Greenback. Durable Goods Orders increased by just 0.3% in June, well below market expectations of a 1.6% rise. Excluding transportation, orders rose 0.6%, while computers and electronic products made the strongest contribution to the increase.

The combination of easing geopolitical tensions, weaker-than-expected US economic data and caution ahead of the Fed and BoJ policy meetings is therefore keeping USD/JPY under modest pressure at the start of the week.

BoJ under pressure to turn more hawkish as Yen hovers near multi-decade lows

Analysts at MUFG note that the recent “drop in energy prices at the start of this week has brought some much-needed relief for Japanese policymakers and helped to slow upward momentum for USD/JPY which has held just below the 164.00-level since late last week.” They add that “market attention in the week ahead will be on how the BoJ responds to inflation pressures in Japan,” with investors focused on whether the central bank uses the upcoming meeting to shift guidance.

MUFG points out that “the BoJ are expected to leave rates on hold after hiking at the last meeting in June, but market participants will be watching closely to see if they provide any hawkish signals over future hikes.” The bank highlights a recent “Bloomberg” report suggesting “that the BoJ was open to a faster pace of rate hikes than every six months while adding that yen weakness was increasing upside inflation risks.” In their view, “without hawkish guidance, the yen is vulnerable to further weakness especially if the Fed delivers a hawkish policy surprise this week.”

Strategists at BNY similarly argue that “the BoJ is widely expected to leave policy unchanged, with guidance and updated projections the key focus for timing signals.” They flag that “Tokyo Consumer Price Index (CPI), retail sales and industrial production will provide the final assessment of economic conditions ahead of the meeting,” helping to shape the policy debate. BNY expects “the BoJ is expected to keep the target rate unchanged at 1.00%, but a hawkish message committing to further tightening is probably a matter of urgency as the JPY slides beyond four-decade lows.” They warn that “fears are growing over fiscal conditions as well in light of the recent budget, and the BoJ needs to signal some tightening in financial conditions to manage the risks arising from fiscal impulse.” Until the central bank “gets ahead of expectations, the JPY will struggle, especially as balance-of-payments risks resurface.”

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British Pound tumbles as risk-off mood boosts the US Dollar

  • GBP/USD retreats from 1.3363 as risk sentiment turns defensive.
  • Chipmaking headlines pressure Sterling as markets await Fed decision.
  • BoE expected to hold rates despite July Oil-price shock.

The Pound Sterling retreats by 0.13% even though the Greenback is flat during the day, as risk appetite shifted sour on news that a Chinese state-backed company is producing chipmaking machines, prompting a sell-off in ASML, the Dutch-based company.  The GBP/USD trades at 1.3305, after reaching a high of 1.3363.

GBP/USD slips as chipmaking worries, Fed-BoE caution, UK political uncertainty weighed

The de-escalation of the Middle East conflict is a relief for major central banks, as Oil prices slide as the US paused attacks on Iran over the weekend. The US President Donald Trump warned of further military action if negotiations between Washington and Tehran fail. He said that attacks would be “very powerful.”

On Monday, the US economic docket featured Durable Goods Orders for June, which improved from -4% contraction to 0.3% MoM, missing estimates of 1.6% expansion. However, traders’ focus will be on the Federal Reserve (Fed) monetary policy meeting, which is expected to keep rates unchanged, with odds at 60%. The chances of a 25-basis-point rate hike are slim, at about 40%, according to Prime Terminal data.

Source: Prime Terminal

In the UK, the schedule was absent, but investors are also awaiting the Bank of England (BoE) monetary policy meeting. Here, investors are confident that the UK central bank will keep rates unchanged at 3.75% despite the jump in Oil prices in July.

Sterling would remain pressured as investors assess the intentions of the new government led by Prime Minister Andy Burnham.

GBP/USD Price Forecast: Technical outlook

Chart Analysis GBP/USD
GBP/USD daily chart

In the daily chart, GBP/USD trades at 1.3304, keeping a mild bearish bias as spot holds below the simple moving average cluster now aligned near 1.3367. The pair also remains under the broader downward resistance trend line projected from the 1.3465 break area, while the Relative Strength Index (14) around 43 suggests subdued upside momentum rather than outright selling capitulation.

On the topside, initial resistance is seen at the simple moving average zone around 1.3367, with a sustained break exposing the downtrend barrier linked to the 1.3465 region. On the downside, the next notable technical floor is the rising support trend line anchored near 1.3159, where buyers would be expected to regroup if bearish pressure extends.