Dollar Gains Support from Fed and Geopolitics

The Dollar Index strengthened during Asian trading on Tuesday (Sept. 15), hovering around the 99.60 level. The dollar drew support from rising expectations that the Federal Reserve would raise interest rates at its meeting on Wednesday.

Markets now price in a roughly 92.4% probability of a Fed rate hike, a sharp increase from around 60% a week earlier. These expectations intensified after US inflation data revealed persistent price pressures and a surge in oil prices reignited concerns over energy-driven inflation.

Oil price movements are a key factor influencing the Fed's policy direction. Sustained high energy prices could hinder the decline of inflation, thereby giving the central bank grounds to maintain a tight monetary policy for longer.

Investors will next focus on the press conference following the rate decision. If the Fed raises rates but adopts a more dovish tone, the dollar could face a correction. Conversely, signals that tightening will continue could push the DXY closer to the 100 mark.

Beyond expectations of a Fed rate hike, the dollar is also supported by safe-haven demand amidst escalating tensions in the Middle East. As long as geopolitical risks remain elevated and the Fed maintains a hawkish stance, the DXY is likely to retain a positive bias in the short term.