Dollar Holds Near One-Month High Ahead of Fed Decision

The US dollar slipped slightly on Tuesday but remained near a one-month high as traders weighed the prospect of a Federal Reserve interest-rate hike this week. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was down 0.2% to 101.35.

The euro was up 0.2% to $1.1393, while sterling rose 0.1% to $1.3288. Against the Japanese yen, the dollar was about flat on the day at 163.77 yen.

Treasury yields have climbed steadily since April as the US-Iran conflict stoked concerns about inflation and a hawkish debut from Fed Chair Kevin Warsh reinforced expectations of higher interest rates.

“Traders are taking steps to preserve liquidity and adding to dollar longs ahead of tomorrow’s decision,” said Karl Schamotta, chief market strategist at Corpay. “On the face of it, the setup seems bullish for the dollar either way: an outright hike would deliver an unequivocal boost, while a hawkish hold would simply push expectations into September.”

However, he warned that speculative positioning in favor of the dollar was stretched and that any hint of a more dovish approach from policymakers could trigger a violent unwind.