Dollar climbs for 4th day as Fed decision splits markets

The U.S. Dollar edged higher for a fourth straight session on Wednesday as traders positioned for a Federal Reserve decision that pits a 64% probability of a hold against a 36% chance of a quarter-point hike.

The dollar gained ground for a fourth straight session on Wednesday, with the DXY hovering near 101.22, as traders priced a 64% probability the Fed holds rates at 3.5%-3.75% and a 36% chance of a 25-basis-point increase, according to CME FedWatch data.

"The dollar's bid reflects positioning for a hawkish hold — the Fed may leave rates unchanged but signal fewer cuts ahead, which is effectively a tightening of financial conditions," said Anuj Choudhary, research analyst at Mirae Asset ShareKhan. "A surprise hike would likely trigger a sharp dollar spike and risk-asset selloff."

The dollar index slipped 0.04% to 101.22, paring earlier gains as crude oil prices jumped nearly 4% after Iran launched ballistic missiles at U.S. forces in the Middle East, with all intercepted, according to U.S. Central Command. Brent crude traded at $87.27 a barrel, while WTI rose to near $82. S&P 500 futures edged up 0.2% and Nasdaq-100 futures gained 0.3%, while Dow futures slipped 0.2% as higher energy costs weighed on industrial stocks.

The decision marks one of the most uncertain Fed meetings in recent months. If the Fed delivers a hawkish hold — keeping rates steady while signaling a higher-for-longer stance — the dollar could extend its rally, pressuring EUR/USD toward the 1.08 handle and pushing USD/JPY toward 155. A surprise 25-bp hike would likely trigger a sharp dollar spike and risk-asset selloff, while a dovish hold could reverse the greenback's four-day winning streak. The last time the Fed used language signaling a prolonged pause was in late 2024, which preceded a 3% decline in the S&P 500 over the following month as rate-cut expectations were pushed into the following year.

EUR/USD traded near 1.0820 on Wednesday, under pressure as the dollar strengthened ahead of the Fed decision. The euro zone's manufacturing PMI remained in contraction territory at 48.9 in July, according to S&P Global data, widening the growth differential with the U.S. and adding to headwinds for the single currency. A hawkish Fed outcome could push the pair below 1.08 for the first time since April.

GBP/USD slipped to 1.2850, with the pound caught between dollar strength and expectations that the Bank of England may deliver its first rate cut as soon as next week. Markets price a 55% probability of a 25-bp BoE cut on Aug. 7, according to OIS data, which would narrow the rate advantage the pound has enjoyed over the dollar since early 2025.

USD/CAD rose to 1.3750, though gains were capped by the jump in crude oil prices. Canada's dollar-sensitive economy benefits from higher energy prices, with WTI's move above $82 providing a floor for the loonie. The pair's direction hinges on the Fed decision, with resistance at 1.38 and support at 1.37.

USD/JPY traded at 154.20, with the yen weakening as the Bank of Japan maintained its ultra-loose policy stance at its July meeting. The wide rate differential between the U.S. and Japan continues to drive carry trades, though the risk of intervention by Japanese authorities above 155 keeps the pair range-bound. Japan's Ministry of Finance spent a record ¥9.8 trillion on yen-buying intervention in the third quarter of 2025, according to official data.

The Fed's decision is due at 2:00 p.m. ET, followed by Chair Kevin Warsh's press conference at 2:30 p.m. ET. Markets will scrutinize the statement for any shift in the forward guidance language, particularly the reference to "additional policy firming" that has been a staple of recent communiques. OIS markets currently price a total of 75 bps of cuts over the next 12 months, a figure that could shrink or expand depending on the tone of the statement.

This article is for informational purposes only and does not constitute investment advice.