Forex Today: US Dollar firms as markets brace for Fed rate decision

The US Dollar Index (DXY) rose to 99.60 on Tuesday, driven by a surge in bond yields and oil prices. The 10-year US Treasury yield hit 5.04%, the highest level since 2007, as oil prices climbed nearly 4%. Markets anticipate a 92% probability that the Federal Reserve (Fed) will raise interest rates on Wednesday, marking the first hike since 2023.

The reaction will depend on the updated economic projections, the dot plot, and Chair Kevin Warsh's comments on further tightening. The US Retail Sales data released earlier today will influence the USD's performance. The US Dollar performed strongest against the Japanese Yen among major currencies. The heat map displays percentage changes of major currencies against each other, with USD at the left column and other currencies across the top.

EUR/USD and GBP/USD remained relatively subdued, with EUR/USD around 1.1540 and GBP/USD near 1.3480 as the stronger Dollar impacted their movements. USD/JPY held steady near 155.00, bolstered by higher US yields but restrained by the anticipated Bank of Japan (BoJ) rate hike on Friday. Gold prices rebounded above $4,300 per ounce due to rising inflation concerns and Middle East risks.

West Texas Intermediate (WTI) Oil crossed the $105 per barrel threshold on Middle East supply concerns. AUD/USD slipped below the 0.7130 mark, weakened by the stronger Dollar. Agustin Wazne started as a Junior News Editor at FXStreet, specializing in Commodities and covering Majors. AUD/USD faced another retracement but held above the 0.7100 level before Asian markets open.

USD/JPY continues to climb toward 155.00 as traders await the Fed and Bank of Japan meetings this week, with inflation risks and Fed rate hike expectations supporting the US Dollar. However, a more hawkish BoJ policy stance might bolster the Japanese Yen and hinder USD/JPY's upside. As the Federal Reserve's monetary policy decision looms and geopolitical tensions in the Middle East escalate, the US Dollar maintains its upward trajectory.