Ahead of the FOMC, Is the Dollar Set to Continue Its Rally?

The US Dollar Index (DXY) continued to strengthen during Tuesday’s trading session (October 27, 2026), hovering around the 102.00 level ahead of the Federal Reserve’s (Fed) monetary policy meeting. The dollar posted gains for the third consecutive day, following a recovery from three-week lows touched last Thursday. Although it reached a near two-week high during the Asian session, the dollar’s ​​advance remained limited as investors exercised caution ahead of an interest rate decision that could potentially trigger volatility in global financial markets.

The dollar’s ​​strength is underpinned by growing expectations for tighter US monetary policy, a recovery in US Treasury yields, and geopolitical uncertainty in the Middle East. Persistently high energy prices have fueled concerns regarding inflationary pressure, raising the possibility that the Fed may keep interest rates elevated for a longer period. Furthermore, the dollar’s ​​status as a "safe-haven" asset continues to provide support as market participants navigate risks related to international conflicts and global economic uncertainty.

The market widely anticipates that the Fed will maintain current interest rates at its October 27–28 meeting. Consequently, investor attention is focused not only on the rate decision itself but also on the policy statement and the press conference to be held by Fed Chair Kevin Warsh. Market participants will be looking for signals as to whether the central bank intends to pursue further rate hikes or adopt a more cautious approach. Given that little change in policy is expected in October, the Fed’s communication is likely to be the primary driver for the dollar’s ​​direction.

Meanwhile, the market is pricing in an approximately 80% probability of an interest rate hike in December, according to estimates reported ahead of the meeting. This expectation is driven by inflationary pressures stemming from high energy costs, even though some Fed officials have previously indicated that there is no urgent need for further tightening. Investors are also awaiting the release of third-quarter U.S. Gross Domestic Product (GDP) data and the Personal Consumption Expenditures (PCE) price index on Thursday (October 29), which will provide a clearer picture of economic growth and inflation trends.

Looking ahead, the outlook for the U.S. dollar will be heavily influenced by the gap between market expectations and the signals conveyed by the Federal Reserve. If the central bank maintains a hawkish stance—leaving the door open for a potential interest rate hike in December—the DXY (U.S. Dollar Index) could continue to strengthen, supported by rising bond yields. Conversely, a more dovish tone or weaker-than-expected economic data could trigger a correction in the dollar. For the gold market, a stronger dollar and expectations of higher interest rates serve as major headwinds to a price recovery; therefore, this week’s FOMC decision could prove pivotal in determining the future direction of gold prices.