The US Dollar has shown notable strength against major currencies, particularly the Japanese Yen, Euro, and Canadian Dollar, as markets await the Federal Reserve's (FOMC) monetary policy announcement scheduled for Wednesday [3][4]. According to UOB, the USD/JPY reversed earlier downside expectations, dipping to 153.29 before surging to 154.99 and closing at 154.35 (+0.53%). UOB now sees scope for a move above 155.00, though 155.50 is likely out of reach in the near term, with the pair expected to remain within a 153.30–156.30 range over the next 1–3 weeks [1]. The US Dollar was the strongest against the Japanese Yen, gaining 0.47% on the day [3].
The Euro has held near a one-month low against the US Dollar, trading around 1.1543 after touching an intraday low near 1.1527. The pair has lacked strong follow-through selling as traders avoid large bets ahead of the Fed decision. US Treasury yields climbed to fresh multi-year highs, with the benchmark 10-year yield reaching 5.04%, its highest since 2007, before easing back toward 5%. The US Dollar Index (DXY) trades around 99.60, up 0.11% and close to a two-week high [3].
The Canadian Dollar remains slightly softer against the US Dollar, with USD/CAD showing a bullish short-term tone. Scotiabank notes that firmer crude oil prices and steady US-Canada front-end yield spreads are supporting the CAD, but it will struggle to resist the broader USD trend around the FOMC decision. USD gains through the mid/upper-1.38s point to short-term strength, but a significant resistance zone exists in the low/mid-1.39s. Persistent core CPI pressures in Canada keep focus on potential Bank of Canada normalization later this year [2].
TD Securities expects the FOMC to deliver a 25bps rate hike, with the dot plot signaling fewer hikes than markets imply. They anticipate knee-jerk weakness in the Dollar under this base case, but note that a dovish hold could push USD back to pre-August CPI levels, while a more hawkish dot plot could extend the recent USD rally. The curve could bull steepen modestly, and Chair Warsh is expected to explain the lack of progress in August inflation data without providing forward guidance [4].
Market participants are closely watching the Fed's decision, with the CME FedWatch Tool indicating a 92% chance of a 25bps hike. A surprise hold or hawkish projections could significantly impact USD and Treasury yields, with potential for sharp moves in EUR/USD and other pairs [3][4].
CONCLUSION
The US Dollar has outperformed major currencies ahead of the FOMC decision, supported by rising Treasury yields and expectations of a 25bps rate hike. Analysts highlight potential for volatility depending on the Fed's tone and projections, with resistance levels noted for USD/JPY and USD/CAD. The market remains highly sensitive to the upcoming Fed announcement, which could drive further moves in currency and bond markets.