Dollar Capped Ahead of FOMC Decision as Hawkish Guidance Weighs on Equities

The US dollar's gains were capped on Monday, despite surging oil prices and Treasury yields. The DXY index reached a one-month high of 99.7 but fell back to 99.4 by late afternoon as Brent crude retreated from $109.8 to $105.

This underperformance raises the stakes for Wednesday's FOMC decision, where markets assign around a 90% probability to a 25bp hike and price roughly two increases across the remaining 2026 meetings.

A hawkish Fed guidance could support the dollar but cap equities as higher discount rates and political criticism weigh on sentiment. A dovish message would leave markets with higher borrowing costs but less confidence that the Fed will follow through.