Dollar index climbs to 101.35 as traders await Fed decision

The US Dollar strengthened to multi-week highs on Tuesday, pushing EUR/USD toward its lowest level in over a year ahead of the Federal Reserve's rate decision.

The dollar index rose to 101.35, its highest in a month, as currency markets priced in the risk of a hawkish outcome from the Fed's two-day policy meeting.

"Right now, traders would rather own dollars against the risk of a hawkish Fed than wait for the policy debate to be resolved," said Stephen Innes, managing partner at SPI Asset Management.

EUR/USD slipped 0.02% to 1.1370 after touching a session low of 1.1353, within striking distance of its 52-week trough at 1.1325. GBP/USD edged down to 1.3297, while USD/JPY rose 0.07% to 163.86 and USD/CHF gained 0.05% to 0.8189. The dollar's advance coincided with the 10-year Treasury yield easing 1.9 basis points to 4.622%.

The Fed is expected to hold its benchmark rate at 3.75% when it announces its decision Wednesday at 2 p.m. ET. Any signal that policymakers see inflation persistence warranting further tightening could extend the dollar's rally, with implications for commodities, emerging-market currencies, and multinational earnings.

Euro Tests Key Support

The common currency has fallen more than 5% from its 52-week high of 1.2079, with technical indicators signaling further weakness. EUR/USD carries a "Strong Sell" rating based on moving averages and momentum oscillators, according to Investing.com data. A break below 1.1325 would mark the euro's lowest level since late 2024 and open the path toward the psychological 1.12 handle.

The euro's decline reflects a widening interest-rate differential between the eurozone and the U.S. German 10-year bund yields stood at 3.13%, roughly 149 basis points below comparable U.S. Treasury yields, making dollar-denominated assets more attractive to yield-seeking investors.

Dollar Strength Weighs on Commodities, Equities

The dollar's rally rippled across asset classes. Gold fell 1.35% to $4,021.85 an ounce, extending its decline as a stronger greenback reduces the metal's appeal to holders of other currencies. Brent crude slid 2.34% to $83.86 a barrel, while WTI crude dropped 1.74% to $81.17.

The S&P 500 declined 0.35% to 7,387.64, with technology and consumer discretionary sectors among the laggards. A stronger dollar typically pressures S&P 500 earnings, as roughly 40% of revenue for index constituents comes from outside the U.S.

The Fed's decision arrives against a backdrop of resilient economic data. Consumer confidence data due later Tuesday is expected to rise to 92.40 from 91.20 in June, while the Atlanta Fed's GDPNow tracker points to second-quarter growth of 1.6%. The central bank's updated economic projections and dot plot will be closely watched for clues on the rate path through year-end.

Chris Turner, global head of markets at ING, noted that the dollar's bid reflects a broader recalibration of rate expectations. "The dollar remains bid as investors position for a hawkish FOMC tomorrow, if not a rate hike," Turner said in a note. The Swiss franc has also emerged as a favored funding currency for carry trades, with USD/CHF pushing toward 0.82.

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