Markets Turn Cautious Amid Geopolitical Risks Ahead of Fed Rate Decision

Financial markets turned cautious midweek as escalating tensions in the Middle East pushed investors toward safer assets. The rising geopolitical risks, combined with anticipation of the Federal Reserve's interest rate decision, led to a risk-averse mood among market participants.

The cautious approach kept major currency pairs within relatively narrow trading ranges during the European session. The US Dollar Index struggled to gain from the broader risk-averse mood and remained steady at around 101.30.

The EUR/USD traded in a narrow channel at around 1.1400 early Wednesday, while the GBP/USD corrected higher and traded above 1.3300. The movements in these currency pairs came as markets remained focused on the upcoming Fed decision and developments in the Middle East.

Data from Australia also influenced currency market movements on Wednesday. Annual inflation declined to 3.8% in June, below the market expectation of 4%. The Australian dollar faced pressure following the inflation data and traded at a fresh two-week low near 0.6950.