Key Takeaways

• Dollar index firms slightly: The DXY ticked up 0.1% to 98.70, with the euro down 0.1% at $1.1698 and the pound 0.1% lower at $1.3502.
• Fed expected to hold: Rates likely to stay at 3.5%-3.75%, with the WSJ reporting potential hawkish tweaks to forward guidance — possibly removing the door to 2026 cuts.
• Powell’s final act: Wednesday’s press conference is widely expected to be Jerome Powell’s last, with his term ending May 15.
• Hawkish risk flagged: ING analysts say Powell could “err on the hawkish side” given lack of progress in the Gulf.
• Warsh in the wings: Former Fed Governor Kevin Warsh — Trump’s pick to replace Powell — faces a Senate Banking Committee confirmation vote this week.
• Iran blockade looms: Trump has reportedly directed aides to prepare for a prolonged blockade, viewing it as safer than military escalation or rushed diplomacy.
• Dollar as safe haven: America’s status as a major energy exporter is shielding the greenback from the war’s fallout, boosting its appeal.
• Big tech earnings on tap: Alphabet, Microsoft, Amazon, and Meta report today — their AI spending has been a key market support amid Iran turmoil.

The U.S. dollar index held its ground on Wednesday as investors braced for a pivotal Federal Reserve interest rate decision unfolding against a backdrop of mounting concerns over the inflationary fallout from the Iran war.

By 08:29 ET (12:29 GMT), the dollar index — which tracks the greenback against a basket of major peers — had ticked 0.1% higher to 98.70.

The euro edged 0.1% lower against the dollar to $1.1698, while the British pound slipped 0.1% to $1.3502.

Fed Set to Stand Pat — But Tone Could Shift Hawkish

The Fed is widely expected to keep interest rates anchored within a range of 3.5% to 3.75% as it concludes its latest two-day gathering, with policymakers keeping a close watch on the inflationary impact of the Iran war.

According to the Wall Street Journal, the Fed may modify its forward guidance in a hawkish direction by stripping out references to potential rate cuts later in 2026.

The decision will also feature what is likely to be the final post-meeting press conference from current Fed Chair Jerome Powell, whose term atop the central bank is set to conclude on May 15.

Former Fed Governor Kevin Warsh is President Donald Trump’s nominee to succeed Powell, with the Senate Banking Committee scheduled to vote on confirming the appointment this week. If confirmed, Warsh would be positioned to assume the Fed chair role before officials reconvene in June.

Iran Blockade Plans Boost the Dollar’s Safe-Haven Appeal

Elsewhere, President Donald Trump has directed aides to prepare for a prolonged blockade of Iran, signaling a strategic shift toward sustained economic pressure as Washington considers its next moves in the conflict, according to the Wall Street Journal report on Tuesday.

Citing U.S. officials, the report indicated that Trump has opted to ramp up efforts to strangle Iran’s oil exports and tighten restrictions on shipping in and out of its ports — viewing a blockade as a less risky path than resuming large-scale military strikes or pursuing a rushed diplomatic exit.

With the outlook for peace talks shrouded in uncertainty, the appeal of the dollar has been amplified. Traders have been gravitating toward the currency as a relative sanctuary throughout the crisis, partly underpinned by the view that the U.S. economy — as a major energy exporter — will be cushioned from any energy shock triggered by the conflict.

They added that a favorable dollar reaction to any hawkish surprise could be amplified by weakness in U.S. equities, which face a defining test on Wednesday with earnings releases from Alphabet, Microsoft, Amazon, and Meta. The four companies’ aggressive spending on AI infrastructure has been instrumental in shoring up stock markets against the headwinds from the Iran war.