US dollar steadies ahead of Fed decision as oil prices and Treasury yields retreat

The US dollar traded in a narrow range on Monday, October 26, as investors prepared for the Federal Reserve's interest rate decision later this week, while easing oil prices and lower Treasury yields limited demand for the currency.

The greenback remained supported by expectations that US borrowing costs would stay elevated, although the recent retreat in energy prices reduced concerns about another inflation shock.

Price overview

The US Dollar Index (DXY) traded around 101.64 points during Monday's session.

The EUR/USD pair stood near $1.1220, gaining approximately 0.16%, as GBP/USD traded around $1.3385, rising 0.1%, while USD/JPY hovered near 156.92 yen.

Federal Reserve outlook

The Federal Reserve is widely expected to leave interest rates unchanged at its October 27–28 meeting, with investors focused on whether policymakers will signal another increase before year-end.

September's US consumer inflation reached 3.7% annually, strengthening expectations that the central bank will maintain restrictive monetary policy.

However, declining Treasury yields have reduced some of the dollar's interest rate advantage over other major currencies.

Oil prices ease

Brent crude retreated toward $115 a barrel amid hopes of reduced tensions involving Iran, easing concerns about further increases in global energy costs.

The decline provided some relief to currencies previously pressured by higher oil prices.

European currencies recover

The euro received support after France avoided a sovereign credit rating downgrade, easing concerns about the country's fiscal outlook.

Sterling also advanced modestly, although investors remained cautious ahead of Britain's upcoming budget and the Bank of England's November policy meeting.

Market outlook

The dollar's near-term direction will depend on Federal Reserve guidance, Treasury yields and developments in energy markets.

A more hawkish Fed statement could strengthen the currency, while further declines in oil prices and bond yields may encourage additional selling.