The US Dollar Index (DXY) extended its winning streak for the sixth consecutive day, trading around 99.70 during Asian hours on Wednesday, as traders awaited the US Federal Reserve's (Fed) interest rate decision later in the day [1]. The EUR/USD pair remained under pressure, trading near a one-month low at 1.1535–1.1530, while GBP/USD softened to 1.3470 and USD/CAD hovered near a two-week high at 1.3930, reflecting broad USD strength across major currencies [2][3][4].
Financial markets widely anticipate a 25 basis point Fed rate hike, with the CME FedWatch tool indicating a 92.4% probability of such an increase, raising the benchmark overnight rate to a range of 3.75% to 4.00% [1]. This expectation is reinforced by hotter-than-expected US inflation data released last week and surging energy prices, particularly after oil prices hit their highest level since May 20 amid supply disruptions in the Middle East [1][2][4]. The rise in public and corporate borrowing has also pushed the yield on the benchmark 10-year US Treasury bond to its highest level since April 2007, further underpinning the USD [2].
Market participants are closely watching Fed Chair Kevin Warsh’s post-decision press conference for signals on future policy direction, with expectations building for additional rate adjustments in October or December [1][2][4]. However, Juan Perez of Monex USA cautioned that investors should remain alert for surprises, noting Warsh's aversion to forward guidance and the potential for unexpected moves [3].
Technical analysis across the pairs shows the DXY holding a bullish bias above key moving averages, EUR/USD capped by the 100-day SMA at 1.1554, GBP/USD supported above the 100-day MA but with fading bullish momentum, and USD/CAD poised for further gains if it breaks above the 100-day SMA and 38.2% Fibonacci retracement [1][2][3][4]. Over the past seven days, the USD has strengthened most against the New Zealand Dollar (up 1.94%), followed by gains against CAD (1.05%), JPY (0.92%), CHF (1.20%), AUD (1.26%), EUR (0.78%), and GBP (0.53%) [4].
While the European Central Bank's hawkish outlook offers some support to the Euro, losses remain limited but capped, and the Bank of England is expected to hold rates steady at 3.75% in September, with a hike to 4% predicted before year-end as UK inflation builds [2][3]. The Canadian Dollar is weighed down by a dovish Bank of Canada stance and US-Canada trade tensions, despite oil price gains [4].
CONCLUSION
The US Dollar's strength is driven by expectations of a Fed rate hike, rising inflation, and energy price pressures, resulting in broad declines for major currencies. Market sentiment remains bullish for the USD, with technical and fundamental factors supporting further gains. Investors are focused on the Fed's policy signals, with volatility expected around the decision and subsequent press conference.