The US Dollar extended its gains against major currencies on Tuesday, with the Dollar Index (DXY) trading near its monthly high of 101.59, as investors adopted a cautious stance ahead of the Federal Reserve’s monetary policy announcement scheduled for Wednesday [4]. The Indonesian Rupiah (IDR) faced significant pressure, with USD/IDR rising to around 18,130, following the surprise resignation of Bank Indonesia Governor Perry Warjiyo on Monday. This unexpected leadership change raised concerns among analysts and investors about the central bank’s independence and the future direction of Indonesia’s monetary policy, although S&P stated that Indonesia's credit ratings would remain unaffected for now [1].
In the UK, the British Pound (GBP) traded with a bearish bias near 1.3300 against the US Dollar, remaining under pressure as investors awaited both the Federal Reserve and Bank of England (BoE) policy decisions this week [2]. The BoE is widely expected to keep its benchmark rate unchanged at 3.75% with a 7-2 majority, while market participants are keenly watching for hawkish dissenters and Governor Bailey’s comments for clues on future policy moves [2][3]. ING economists, however, are skeptical about a rate hike this year, projecting that the BoE will stay on hold through 2026, with possible rate cuts only from spring 2027, contingent on fiscal policy developments [3]. Market concerns about the UK’s fiscal outlook have also weighed on the Pound, following Prime Minister Andy Burnham’s new spending pledges [3].
The Euro (EUR) also weakened, revisiting its monthly low around 1.1362 against the US Dollar, as the risk-off sentiment and anticipation of the Fed’s decision kept the common currency under pressure [4]. Despite the ECB’s hawkish stance last week—leaving rates on hold after a 25-basis-point hike in June and signaling a possible further hike in September—investors are awaiting upcoming German and Eurozone inflation data, which could influence future ECB policy [3][4]. The Euro did, however, consolidate gains against the Pound, supported by a pause in US-Iran hostilities and a decline in oil prices, which helped ease inflationary pressures [3].
Market expectations for the Fed’s next moves remain mixed. The CME FedWatch Tool shows a 62% probability that the Fed will keep rates unchanged at 3.50%-3.75% at this meeting, but an 80.8% chance of a rate hike in September [2][4]. Citadel Securities expects the Fed to raise rates to reinforce Chairman Kevin Warsh’s inflation-fighting credibility, while President Donald Trump has publicly called for lower rates, citing recent positive inflation data and falling costs [1][2]. Chairman Warsh has indicated that forward guidance is not appropriate in the current environment, suggesting limited clarity on future policy direction from the upcoming press conference [4].
Geopolitical developments also played a role in market sentiment. A pause in US-Iran hostilities and a resulting drop in oil prices provided some relief to global inflation concerns, although Tehran denied direct negotiations with the US [1][3].
CONCLUSION
The US Dollar’s strength reflects heightened market caution ahead of the Federal Reserve’s policy decision, with major currencies including the Euro, Pound, and Indonesian Rupiah under pressure. The surprise resignation of Indonesia’s central bank governor and ongoing uncertainty about UK fiscal and monetary policy have added to market volatility. Investors are closely watching central bank communications and upcoming inflation data for further direction.