The US dollar has fallen to its lowest level since mid-February as Treasury yields increase before the Federal Reserve rate decision. Expectations of a rate move have slightly increased, but are still not fully priced in.
US dollar sinks to mid-February lows
The US dollar is struggling on Wednesday despite an increase in Treasury yields during the North American session and ahead of the Federal Reserve rate decision. The DXY (USD) index has dropped to its lowest level since mid-February, trading near 103.
This weakness in the US dollar comes as expectations of a rate hike at the Federal Open Market Committee (FOMC) meeting have slightly increased. However, the market is still only pricing in a 75% probability of a 25 basis point hike, meaning that a rate move is not fully priced in.
Interest rate market weighs probability of rate move
The interest rate market is currently weighing the probability of a rate move at the FOMC meeting. While expectations have slightly increased, the market is still not fully pricing in a rate hike.
This uncertainty has contributed to the weakness in the US dollar, as investors remain cautious ahead of the Fed decision. Many are waiting for further guidance from the central bank before making any significant moves.
Fed decision could impact US dollar
The Federal Reserve rate decision is expected to have a significant impact on the US dollar, as investors look for clues about the central bank’s future plans. If the Fed signals that it is prepared to raise rates sooner than expected, the US dollar could strengthen as investors rush to take advantage of higher yields.
However, if the Fed takes a more cautious approach and signals that it is not yet ready to raise rates, the US dollar could weaken further. This could be particularly true if the central bank indicates that it is prepared to tolerate higher inflation for a longer period of time, as this could lead investors to expect lower real yields in the future.