US Dollar Rally Loses Steam As Forex Traders Turn Cautious Ahead Of Fed Rate Decision

The upward momentum in the U.S. dollar, which reached its highest level since mid-June in the previous session, has moderated early Wednesday as forex traders look ahead to the upcoming Federal Reserve policy meeting.

The Dollar Index climbed to 99.14 intraday on Tuesday, marking its highest level since June 11, before giving back some of the gains. Yet it ended 2.5% higher at 98.91. This marked the fourth straight session of gains for the index, which measures the value of the U.S. dollar against a basket of the top 10 currencies.

According to a Reuters report, the dollar is poised to record its first month of gains in July. 

The Invesco DB US Dollar Index Bullish Fund (UUP), an exchange-traded fund (ETF) that tracks the Deutsche Bank U.S. Dollar Long Future Index, edged down 0.07% in Wednesday’s early premarket session. The ETF is down approximately 6.3% year-to-date.

The next significant catalyst for the greenback is likely to be Wednesday’s Fed decision. Given a pause decision is factored in, the tone of the post-meeting policy statement of the central bank could have a bearing on the dollar’s move.

A dovish Federal Open Market Committee (FOMC statement) and/or Chair Jerome Powell leaving the door open for a September rate cut could exert downward pressure on the dollar.

The Bank of Japan is also expected to announce its monetary policy decision on Thursday, which will likely impact the USD-JPY dynamics. 

Also on the radar of currency traders are a few key U.S. data points due later this week, including the July non-farm payrolls report and the June personal consumption expenditure data, released as part of the Bureau of Economic Analysis’s personal income and spending report. 

Among currency pairs, the dollar was firmer against commodity currencies such as the Australian and Canadian dollars, but eased against most other major currencies.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: Meta Q2 Earnings On Deck: Can Zuckerberg Justify Massive AI Bet To Wall Street?