The US Dollar (USD) traded in a narrow range against major currencies on Wednesday as market participants awaited the outcome of the Federal Open Market Committee (FOMC) meeting, with the NZD/USD pair holding below the 0.5900 mark and the GBP/USD edging higher to around 1.3300 during Asian trading hours [1][3]. Traders exhibited caution ahead of the FOMC, with a 30.5% probability priced in for an immediate rate hike and a 76.6% chance of a rate increase in September, reflecting significant uncertainty about the US interest rate trajectory [3].
Geopolitical tensions in the Middle East provided additional support for the safe-haven USD. Iran's Islamic Revolutionary Guard Corps (IRGC) launched a surprise attack targeting US forces with multiple ballistic missiles late Tuesday, though all missiles were intercepted according to US Central Command (Centcom) [1][2]. In response, US and Saudi forces struck terrorist logistics and weapons sites in eastern Iraq, retaliating against over 30 drone attacks in the past three days by Iran-aligned groups [2]. President Donald Trump warned of strong military action against Iran if diplomatic efforts fail, further elevating the geopolitical risk premium [1][2].
These developments contributed to a sharp recovery in crude oil prices, reviving inflation fears and bolstering market expectations for at least one Fed rate hike in 2026 [1][2]. The US Dollar was the strongest against the Australian Dollar, gaining 0.29%, and was nearly unchanged against the New Zealand Dollar (-0.01%) [1]. Meanwhile, gold (XAU/USD) consolidated above the $4,000 level after touching a two-week low, with technical indicators suggesting a bearish setup and the Relative Strength Index (RSI) hovering around 43 [2].
On the New Zealand front, the Reserve Bank of New Zealand's (RBNZ) hawkish stance, supported by above-target inflation and a favorable domestic growth outlook, could underpin the NZD, according to strategists at Brown Brothers Harriman [1]. In the UK, the Bank of England is expected to keep rates steady at 3.75% later this week, as annual consumer price growth slowed to a 15-month low of 2.6% in June, below previous projections [3].
Overall, the interplay of central bank policy expectations and heightened geopolitical risks is driving cautious trading across major asset classes, with the USD, gold, and key FX pairs all reflecting the prevailing uncertainty.
CONCLUSION
Markets are in a holding pattern as traders await clarity from the FOMC amid escalating US-Iran tensions and shifting inflation expectations. The US Dollar remains supported by safe-haven flows and potential rate hike bets, while gold and major currency pairs exhibit cautious, range-bound behavior. Central bank decisions and geopolitical developments will be key drivers for near-term market direction.