US Dollar Index (DXY) steadies below 101.50 as investors await the FOMC decision amid escalating Iran-related risks.

• US Dollar bulls stay cautious ahead of the highly anticipated FOMC policy announcement later on Wednesday.
• Ongoing geopolitical tensions continue to support demand for the safe-haven US Dollar.
• A rebound in oil prices has reignited inflation concerns and strengthened expectations of further Fed tightening, lending support to the greenback.

The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, is trading in a narrow range below the 101.50 mark during Wednesday’s Asian session as investors await the outcome of the Federal Reserve’s two-day FOMC meeting. Despite the consolidation, the index remains supported near a one-month high reached on Tuesday and continues to exhibit a constructive bias amid ongoing geopolitical tensions.

Market sentiment shifted after Iran’s Islamic Revolutionary Guard Corps (IRGC) launched multiple ballistic missiles at US military positions in the Middle East late Tuesday. Adding to the uncertainty, President Donald Trump reiterated that Washington is prepared to resume strong military action against Iran if diplomatic efforts fail to quickly resolve the crisis. These developments have heightened concerns about a renewed escalation in the region, boosting demand for the safe-haven US Dollar.

At the same time, the latest Middle East tensions have triggered a sharp rebound in crude oil prices, reigniting worries about inflation and increasing speculation that the Federal Reserve could raise interest rates again. This backdrop is likely discouraging traders from taking aggressive bearish positions on the DXY, though gains remain limited ahead of the Fed’s policy announcement later in the day.

Investors are primarily focused on the Fed’s guidance regarding future monetary policy, which is expected to be the next major catalyst for the US Dollar. Analysts at DBS note that markets remain “highly cautious” ahead of the FOMC decision, despite the recent pullback in oil prices following a temporary easing of US-Iran hostilities. According to the bank, traders are still pricing in roughly a 34% probability of a rate hike at this meeting and nearly 100% odds of a hike in September, highlighting expectations that the Fed may resume tightening even as some geopolitical risk premium in energy markets has faded.