US Dollar Index holds position near 98.50 ahead of Fed policy decision

• The US Dollar Index moves little as traders adopt caution ahead of the Fed’s interest rate decision.

• Traders expect the Fed to leave interest rates unchanged at its June meeting scheduled on Wednesday.

• US Retail Sales declined by 0.9% in May, exceeding expectations of a 0.7% decrease.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is retracing its recent gains and trading around 98.70 during the Asian hours on Wednesday. Markets expect the US Federal Reserve (Fed) to keep the interest rate unchanged at the June meeting scheduled on Wednesday. Traders now see a nearly 80% probability of a Fed rate cut in September, followed by another one in October, per Reuters.

Traders will likely closely monitor the Federal Open Market Committee’s (FOMC) statement regarding monetary policy, seeking forward guidance amid persistent tariff uncertainty and rising geopolitical tensions.

The Greenback faces challenges due to the weaker-than-expected US economic data released on Tuesday. US Retail Sales fell by 0.9% in May, worse than the expected 0.7% decline and April’s 0.1% decrease (revised from +0.1%). Meanwhile, Industrial Production also declined by 0.2%, against the 0.1% increase, swinging from the previous 0.1% growth.

The US Dollar may regain its ground due to increased safe-haven demand amid rising geopolitical tensions in the Middle East. Israel and Iran continue their cycle of retaliation. However, Tehran has reportedly urged several countries, including Oman, Qatar, and Saudi Arabia, to urge US President Donald Trump to declare an immediate ceasefire.

On Tuesday, US President Donald Trump posted on his social media platform, calling for Iran’s “unconditional surrender.” Investors are concerned that the United States will participate in the Israel-Iran conflict.