The dollar index (DXY) fell to a one-week low on Wednesday, closing down 0.48% after the Federal Open Market Committee (FOMC) decided to hold interest rates steady at 3.50% to 3.75% in a 9-3 vote. This decision followed a significant increase in crude oil prices, which jumped over 6% amid rising tensions between the U.S. and Iran. The FOMC’s statement noted that economic activity was expanding, but inflation, particularly in energy, remained elevated.
The Islamic Revolutionary Guard Corps (IRGC) reported attacks on a U.S. airbase in Jordan, further escalating tensions and contributing to the increased oil prices. In response, the U.S. and Saudi Arabia conducted joint military action against Iran-aligned targets in Iraq. Following these developments, the markets are pricing in a 59% probability of a 25 basis point rate hike at the next FOMC meeting on September 15-16. In contrast, the euro rallied by 0.60% against the dollar, while the yen saw a decline of 0.36% due to Japan’s heavy reliance on energy imports, which are now more costly amid the rising crude prices.
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