Key Takeaways

• Dollar stabilizes: The DXY traded largely flat at 99.55 — near a 10-day low — ending its four-session losing streak.
• Euro stalls: EUR/USD hovered near one-week highs at 1.16 after flatling as traders awaited the Fed.
• No large bets placed: Currency desks are holding back ahead of the Fed’s policy announcement later today.
• Warsh’s first major test: The new Fed chair faces his maiden press conference amid lingering above-target inflation concerns.
• Rates on hold: The Fed is universally expected to leave rates unchanged; the dot plot and Warsh’s commentary are the key watches.
• Dot plot the pivotal signal: Investors will scrutinize whether policymakers retain projections for rate cuts later in 2026.
• Eurozone CPI mixed: May inflation accelerated on an annual basis but decelerated month-on-month — offering policymakers some comfort.
• Iran deal shifts focus: With Tehran agreeing to a 60-day nuclear freeze and Washington greenlighting immediate Iranian oil exports, the Hormuz risk premium is rapidly deflating.
• Central bank divergence now key: With geopolitical risk easing, relative monetary policy trajectories are taking center stage as the primary FX driver.
• Yen edges up: USD/JPY inched 0.2% higher following the BOJ’s rate hike to 1% on Tuesday.
• Aussie flat: AUD/USD traded little changed after the RBA’s decision to hold rates at 4.35%.

The euro’s charge to a one-week high stalled while the dollar arrested a bruising four-day drop on Wednesday, as currency markets locked into a tight holding pattern ahead of the Federal Reserve’s maiden policy decision under Chair Kevin Warsh.

The U.S. Dollar Index traded largely flat at 99.55 by 0940 GMT, remaining near a 10-day low, while EUR/USD hovered near one-week highs at 1.16.

Traders refrained from placing large directional bets ahead of the Fed’s policy announcement later in the day.

Warsh’s Maiden Policy Test

Markets widely expect the U.S. central bank to leave interest rates unchanged, with investors instead focusing on updated economic projections and Warsh’s first post-meeting press conference for clues on the future path of monetary policy.

Warsh — who took over as Fed chair last month — faces his first major policy test amid lingering concerns that inflation could remain above the central bank’s target. Investors will scrutinize whether policymakers retain projections for rate cuts later this year.

Euro Stalls on Mixed Eurozone Data

The euro flatlined in a tight range as foreign exchange desks shrugged off mixed Eurozone inflation data and paused ahead of the Federal Reserve’s upcoming policy decision. While May’s CPI accelerated on an annualized basis, a month-on-month deceleration offered comfort to policymakers still assessing the fallout from the recent war-induced energy shock.

Iran Deal Reshapes the FX Narrative

This data-watching lull coincides with a broader market reprieve as investors digest emerging details of the U.S.-Iran interim peace deal.

With Tehran agreeing to a 60-day nuclear freeze and Washington preparing to greenlight immediate Iranian oil exports, the looming reopening of the Strait of Hormuz has successfully defused immediate geopolitical risk — shifting the focus back to relative central bank trajectories as the primary driver of currency moves.

The Japanese yen’s USD/JPY pair inched up 0.2%, while the Australian dollar’s AUD/USD traded largely flat.