Dollar Holds Near Flat at 101.32 as Fed's Two-Day Meeting Opens

The Dollar Index sits at 101.32, up 0.04% on the day — essentially flat after a session in which broad dollar softness was reported across desks as US-Iran hostilities reportedly paused, denting haven demand. Treasury yields eased across the curve (10Y -2.8bp to 4.651%, 30Y -2.7bp to 5.135%, 5Y -1.8bp to 4.408%, 3M -0.5bp to 3.800%), trimming some of the yield support that had underpinned the dollar. Equities were mixed: the Dow added 0.42% to 52,149.45 while the Nasdaq fell 1.01% to 24,883.47 and the S&P 500 eased 0.07%. Oil slid sharply — WTI down 8.67%, Brent down 7.37% — on reports of a pause in US-Iran strikes. Gold rose 0.58% to 4076.43 and the VIX was little changed at 19.09.

The Fed funds target remains 3.50-3.75%, with this week's decision widely expected to hold at 3.50-3.75%, and per current positioning the live question is whether the Fed hikes further, not whether it cuts, with markets pricing hike probability. The FOMC's two-day meeting begins today, July 28, with the rate decision and Fed Chair Kevin Warsh's press conference due Wednesday. The Treasury sold $70 billion of 5-year notes at a high yield of 4.408% and $69 billion of 2-year notes, with two more coupon auctions due today ahead of the decision. Yields eased modestly across tenors in the prior session — a small pullback rather than a shift in policy odds, with 10-year yields down 2.8bp to 4.651%.

EUR/USD trades at 1.1372 (+0.02%), having firmed on broad dollar weakness before paring gains into a little-changed close, with traders squaring up ahead of Wednesday's Fed decision. GBP/USD is at 1.3291, down 0.25% on the day from a prior close of 1.33237, after cable had firmed in European trade on a broadly soft dollar. USD/JPY eased 0.07% to 163.73, still elevated near its recent multi-decade high as the yen sits near a 40-year low. USD/CAD rose 0.20% to 1.4121, respecting last week's highs, as oil tumbled (WTI -8.67%, Brent -7.37%) on the reported US-Iran strike pause.

GBP/USD trades at 1.3291, down about 0.25% on the day from Monday's prior close of 1.33237. Session reporting described cable building on Friday's bounce and firming in European trade Monday, as reports of a pause in US-Iran strikes weighed on a broadly soft dollar. That followed weakness last week amid renewed UK fiscal concerns, higher energy prices and a firmer dollar. No Bank of England action has occurred yet, with its next decision due Thursday. Both the Fed (Wednesday) and BoE (Thursday) decisions land this week — both widely expected to hold, with the Fed's live question being whether it hikes further rather than cuts — leaving cable's next move framed around relative shifts in forward guidance rather than the decisions themselves.

The FOMC's two-day meeting begins today, with two more coupon auctions due ahead of Wednesday's decision. US data on the slate includes the Goods Trade Balance (forecast -98.0B, previous -105.8B), Prelim Wholesale Inventories m/m (forecast 0.2%), the S&P/Case-Shiller 20-City HPI y/y (forecast 0.8%, previous 1.1%), Conference Board Consumer Confidence (forecast 92.1, previous 91.2) and the Richmond Fed Manufacturing Index (previous 4), plus the weekly ADP employment change and the weekly API crude stock report relevant to oil-linked CAD. Elsewhere, Japan's BOJ Core CPI y/y (forecast 1.4%) prints ahead of Thursday-Friday's BoJ meeting, and Australia's high-impact CPI figures (y/y forecast 4.0%, trimmed mean m/m forecast 0.4%) are due, alongside Spain's unemployment rate (forecast 10.7%).