Dollar Surges Toward Two-Week High Amid Fed Rate Hike Expectations

The US dollar continued its upward momentum on Tuesday, inching toward a two-week high ahead of the Federal Reserve's policy decision on Wednesday.

The greenback edged higher as markets priced in a nearly certain rate hike from the Fed, with CME FedWatch indicating a 93% probability of a rise. The move has already been heavily factored into markets, leaving the dollar's next direction dependent on whether the Fed keeps the door open to additional tightening.

The yen pulled back further from its seven-month high, falling around 0.2% to 154.72 per dollar as investors positioned for a Bank of Japan rate hike later this week. A 25-basis-point BOJ increase is widely expected, and markets are increasingly focused on what policymakers signal about the pace of future hikes.

Higher oil prices added to the pressure on Asian currencies, with the Australian dollar and New Zealand dollar weakening along with the South Korean won. DBS Senior Economist Radhika Rao noted that yields are likely to remain elevated in the near term as they track US bond markets, while USD/IDR is expected to trade within a 17,600-17,800 range.