US dollar climbs as investors brace for hawkish Federal Reserve decision

The US dollar strengthened on Tuesday, October 27, approaching a two-week high as investors prepared for the Federal Reserve's monetary policy decision, with persistent inflation and elevated energy prices reinforcing expectations of further interest rate increases.

The greenback benefited from rising Treasury yields and expectations that Fed Chairman Kevin Warsh could signal additional tightening despite leaving borrowing costs unchanged this week.

Price overview

The US Dollar Index (DXY) traded around 102.17 points at 11:46 GMT, gaining 0.21%.

The index reached an intraday high of 102.29 points, compared with a session low of 101.99.

The EUR/USD pair traded near $1.1172, while GBP/USD stood around $1.3342 in subsequent streaming quotations.

Federal Reserve decision approaches

The Federal Reserve began its two-day policy meeting on Tuesday, with markets overwhelmingly expecting interest rates to remain unchanged at 3.75%–4.00%.

However, investors increasingly anticipate another increase in December as inflationary pressures persist.

September's stronger-than-expected inflation figures and elevated energy prices have strengthened expectations that the central bank will maintain restrictive monetary policy.

Traders will closely examine Wednesday's statement and Warsh's subsequent remarks for indications of further tightening.

Treasury yields support dollar

Higher US Treasury yields have increased the appeal of dollar-denominated assets, placing pressure on major currencies.

The euro remained vulnerable amid concerns about European economic growth and French government finances.

Meanwhile, sterling faced uncertainty surrounding Britain's fiscal outlook and the Bank of England's upcoming policy decision.

Market outlook

The Dollar Index faces immediate resistance near 102.29, with a sustained advance potentially opening the way toward 102.58.

Support remains around 102.00.

A hawkish Federal Reserve announcement could extend the dollar's gains, particularly if policymakers indicate that inflation remains too elevated to rule out another increase in December.