The US Dollar (USD) maintained a bullish tone against major currencies during Asian trading hours on Tuesday, as markets braced for the outcome of the US Federal Reserve's (Fed) two-day policy meeting beginning today [1][2][3]. The GBP/USD pair drifted lower to around 1.3490, pressured by rising expectations of a Fed rate hike on Wednesday, with traders now pricing in about a 92.4% chance of a hike at the September meeting, up from 67% before last week's US core CPI data showed a higher-than-expected 0.3% increase in August [1]. The UK jobs report is due Tuesday, and attention will shift to the Bank of England's (BoE) rate decision on Thursday, where markets see a 30% probability of a quarter-point hike, up from less than 10% the previous week, and nearly fully pricing in a November move [1].
Similarly, the EUR/USD pair remained under pressure, trading below the mid-1.1500s and just above a one-month low, as the USD's strength was reinforced by firming Fed rate hike expectations and US Treasury yields edging toward the 5% threshold, with the 10-year yield at 4.9% [2]. ING's Padhraic Garvey noted that inflation expectations, while not at 'sinister levels,' could prompt further Fed action [2]. Geopolitical tensions, including a missile and drone attack by Iran-backed Houthi forces on a Saudi air base and ongoing clashes in the Strait of Hormuz, contributed to a risk premium supporting both crude oil prices and the USD [2]. The European Central Bank's (ECB) hawkish outlook was cited as a potential factor to limit deeper losses for the Euro [2].
The Canadian Dollar (CAD) consolidated near 1.3900 against the USD, with oil price gains offsetting some of the Greenback's strength ahead of the Fed meeting [3]. Canada's headline CPI held steady at 3% in August, matching both the previous month and market forecasts, while the BoC's core inflation gauge remained near the 2% target [3]. Economists at RBC expect the Bank of Canada to keep rates unchanged through 2026, with gradual increases anticipated in 2027 as the economy strengthens [3]. The USD/CAD pair was supported by high US Treasury yields and the bullish USD, but traders remained cautious ahead of the FOMC outcome [3].
Strategists at Scotiabank highlighted a heavy UK data calendar this week, including jobs data, CPI, and retail sales, with widening UK-US yield spreads continuing to support the Pound's performance [1]. Technical analysis across the major pairs indicated neutral to bearish near-term outlooks, with key resistance and support levels identified for GBP/USD, EUR/USD, and USD/CAD [1][2][3].
Overall, the market focus remains firmly on the Fed's policy decision and subsequent press conference by Chairman Kevin Warsh on Wednesday, with traders awaiting further cues before making significant directional bets [1][2][3].
CONCLUSION
The US Dollar's strength is being driven by heightened expectations of a Fed rate hike and elevated US Treasury yields, while geopolitical tensions and rising oil prices add to market volatility. Major currencies including the British Pound, Euro, and Canadian Dollar are under pressure, with central bank decisions and key economic data in focus this week. Market participants are largely in a holding pattern ahead of the Fed's policy announcement, which is expected to set the tone for near-term currency movements.