The US dollar reached a one-month high on Wednesday, buoyed by safe-haven flows after hostilities flared anew in the Middle East, while traders awaited a key Federal Reserve interest rate decision. According to The Economic Times, moves in currencies were largely subdued in early Asian trade as investors stayed on the sidelines ahead of the Federal Open Market Committee's decision. Markets are pricing in a 33% chance of a 25-basis-point hike, with the dollar index firm at 101.43 against its peers. The euro was languishing near a one-month low at $1.1386, having fallen 0.3% for the month thus far, while sterling was down 0.06% at $1.3282, near its weakest level since July 1. As per IG's Fabien Yip, "I still think that the Fed will need more indication on how long the inflation risk is going to play out," who expects the Fed to keep interest rates on hold.
Adding to inflation fears, oil prices were back on the rise after the U.S. military said it intercepted multiple ballistic missiles launched by Iran towards U.S. forces in the Middle East. According to The Economic Times, this development has intensified concerns about potential supply disruptions and their impact on global energy markets. The dollar gained a touch against the yen to 163.88, keeping pressure on the weakened Japanese currency which continues to struggle at 40-year lows. SMBC's Hirofumi Suzuki noted that "there is a possibility that the FOMC's policy decision and the Chair's press conference could trigger a further strengthening of the dollar, pushing USD/JPY to 164."
Large currency speculators have dramatically shifted their positioning toward the Euro, with net short positions reaching 41,338 contracts in the latest Commitment of Traders (COT) data through July 21, 2026. According to the latest CFTC data, this represents a weekly increase of 28,733 net positions, marking a sharp reversal from previous bullish sentiment. The positioning reflects a significant change in institutional trader and hedge fund strategy toward the Euro, with the 41,338 contract net short position representing a substantial bearish stance on the currency. This dramatic shift comes as the Euro faces continued pressure from dollar strength and shifting institutional positioning amid the broader dollar rally.
Large currency speculators in the US dollar futures market have significantly increased their bullish positioning, with net long positions reaching approximately 16-month highs. According to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC), non-commercial futures contracts of US dollar index futures totaled a net long position of 15,614 contracts in data reported through July 21, 2026. This represents a slight increase of 2,441 net positions compared to the previous week, demonstrating sustained bullish sentiment among institutional traders and hedge funds. The positioning reflects the continued confidence of institutional traders in the dollar's near-term strength, with the 16-month high indicating sustained bullish momentum in dollar futures trading.
The sustained increase in net long positions among large speculators suggests continued institutional confidence in the US dollar's performance trajectory, with the latest COT data showing speculator strength scores at 86.3% indicating Bullish-Extreme sentiment. According to ANZ Bank's Mahjabeen Zaman, "If we do get a surprise hike, surely that's going to lend support to the dollar, probably going to see new highs and probably sustain the level of strength on the dollar especially against the lower yielders, which are Japanese yen and Swiss franc." Citadel's Frank Flight noted that "The market may once again be underestimating the extent of the hawkish shift at the Fed," arguing that an earlier hike would carry more weight than waiting and could reduce total tightening needed later. Despite softer payroll and inflation data reducing expectations of a July rate cut, Flight argued the broader picture still points to persistent inflation risks and a stable labour market.
