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Dollar holds steady ahead of FOMC as oil jumps on Middle East risks
The dollar index was down 0.02% on the day after crude rose more than 6%, lifting inflation expectations ahead of the 2-day FOMC meeting.
The U.S. dollar was little changed as investors looked ahead to the conclusion of a 2-day FOMC meeting later Wednesday, with the dollar index down 0.02% after recovering from overnight losses, according to Yahoo Finance.
Crude oil surged more than 6% after President Trump said the United States would “hit Iran hard” following an attack from Iran that targeted a U.S. base in Jordan. The report also cited statements from Iran’s IRGC about targeting a U.S. airbase and command center in Jordan and claims that it halted tankers transiting the Strait of Hormuz, alongside a joint U.S. and Saudi attack on Iran-aligned targets in Iraq.
With oil higher, markets are discounting a 34% probability of a 25 basis point rate hike at the end of today’s FOMC meeting, the outlet said, noting that higher energy prices can raise inflation expectations and influence the Fed’s stance.
Elsewhere in major pairs, the euro was up 0.04% on the day, limited by the +6% crude jump that the report said is a headwind for a Eurozone economy that imports most of its energy. The markets are also pricing an 89% chance of a 25 basis point ECB rate hike at the September 10 meeting, while USD/JPY was down 0.06% as yen demand found some support from a Nikkei drop to a 2.25-month low.
Latest closeWTI crude $84.21 ▼0.3%|Nikkei 225 61,434.19 ▼1.5%|USD/JPY 159.74 ▼2.5%