DXY: Dollar Holds Near Two-Week High Ahead of Fed Decision. To Hike or Not to Hike?

Greenback retains its gains despite the recovery in stocks, with traders watching whether the Fed reinforces expectations for another rate increase.

💵 Dollar strength survives the rally

• The US dollar index DXY held near 102.40 Wednesday, its highest level since October 14, after gaining 0.3% Tuesday.
• Traders are awaiting the Federal Reserve’s decision later today. A pause is widely expected, putting greater emphasis on what policymakers say about the possibility of further tightening in December.
• The recovery in equities has not displaced demand for the dollar. With US 10-year Treasury yields near 5%, dollar assets continue to offer substantial income.
• DXY measures the dollar against six currencies, with the euro carrying 57.6% of the total weight. That makes developments in Europe particularly influential: euro weakness can lift the index even when the dollar is mixed elsewhere.

🌍 Major currencies face separate tests

• EUR/USD traded near $1.1120 and GBP/USD around $1.33 in early Wednesday trading. The euro has faced pressure from expensive energy, French fiscal concerns and volatility in government bonds.
• Thursday’s ECB decision will help determine whether Europe’s interest-rate outlook provides enough support to challenge the dollar’s recent advantage.
• USD/JPY hovered near ¥157.90, while USD/CAD traded around C$1.4060 in early-session moves. Both pairs face additional domestic catalysts: the Bank of Canada announces its decision at 9:45 a.m. ET today, followed by the BOJ on Friday.
• New Zealand showed how sharply expectations can move FX. NZD/USD fell as much as 2% to $0.5570 after the RBNZ unexpectedly held rates at 2.75%. Australia moved differently: AUD/USD edged toward $0.7035 following firm inflation data.

🏦 Fed guidance sets the next direction

• Futures pricing indicated roughly a 91% probability of unchanged Fed rates. With that outcome largely anticipated, the announcement at 2 p.m. ET could move currencies through guidance alone.
• A stronger commitment to further tightening could support the dollar; softer language could prompt investors to unwind positions built around December hike expectations.
• The Fed will not settle the outlook for long. US GDP and September PCE inflation arrive Thursday at 8:30 a.m. ET, alongside the ECB decision later that morning.
• Firm inflation could reinforce expectations for restrictive policy, while softer readings could weaken the dollar’s yield support. Friday’s BOJ decision adds another potential catalyst for the heavily watched yen pair.