The US dollar stabilized on Wednesday after declining for four consecutive sessions. Investors remained cautious ahead of the Federal Reserve’s policy decision and further details surrounding the US-Iran peace agreement.
The US Dollar Index traded broadly unchanged near 99.55, keeping the currency close to its lowest level in around 10 days.
Traders Await the Federal Reserve Decision
Currency traders avoided making significant directional moves before the Federal Reserve’s announcement later in the day.
Markets largely expect the US central bank to leave interest rates unchanged. Therefore, investor attention will focus on the Fed’s updated economic projections and the post-meeting press conference.
The event will also mark Kevin Warsh’s first policy meeting as Federal Reserve chair.
Kevin Warsh Faces His First Major Policy Test
Warsh assumed leadership of the Federal Reserve last month. His first major policy decision comes amid continued concerns that US inflation could remain above the central bank’s target.
Investors will closely examine whether Fed officials maintain their forecasts for interest rate cuts later in 2026.
Any change in the projected rate path could produce a significant reaction across the dollar, bond and equity markets.
Dollar Outlook Depends on Fed Guidance
ING analysts said the dollar is becoming increasingly dependent on expectations that the Federal Reserve could tighten monetary policy later this year.
This shift follows a decline in Brent crude oil below $80 per barrel after initial details of the US-Iran peace agreement emerged.
According to ING, the dollar may need a clear signal that Fed policymakers, particularly Kevin Warsh, remain open to raising interest rates. However, borrowing costs are still widely expected to remain unchanged at the current meeting.
The analysts also warned that the dollar could fall sharply if Warsh or the wider Federal Open Market Committee delivers guidance that conflicts with existing market expectations.
US-Iran Agreement Improves Market Sentiment
Trading across Asian currency markets remained relatively subdued following a strong improvement in global risk sentiment earlier in the week.
The shift followed reports of an interim agreement between Washington and Tehran. The proposed deal could support the reopening of the Strait of Hormuz and allow Iranian oil supplies to gradually return to international markets.
Further details of the agreement began to emerge on Tuesday.
Under the proposed arrangement, Iran would be permitted to restart oil exports immediately after the agreement is implemented.
Iran Agrees to Nuclear Restrictions
The agreement also includes commitments related to Iran’s nuclear programme.
Iran has reportedly agreed not to pursue or obtain nuclear weapons. It would also freeze any further expansion of its nuclear activities during a 60-day negotiation period.
Investors are closely monitoring the agreement because renewed Iranian oil exports could ease concerns about global energy supplies and reduce upward pressure on crude oil prices.
Major Currency Pairs Remain Stable
Other major currencies showed limited movement during Asian trading.
The Japanese yen was broadly unchanged against the dollar, leaving the USD/JPY pair stable. The Australian dollar also traded largely flat against the US currency.
Currency market volatility could increase following the Federal Reserve’s policy announcement and Kevin Warsh’s first post-meeting press conference as chair.
