US Dollar Index edges lower to near 98.50, awaits Fed's Monetary Policy Report

• US Dollar Index depreciates, possibly driven by a technical correction.
• The Greenback may regain ground due to the potential threat of US direct involvement in the Middle East conflicts.
• Fed Chair Powell cautioned that ongoing policy uncertainty will keep the central bank on hold.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its losses for the second successive day and trading lower at around 98.70 at the time of writing. Traders will likely gauge the Fed's Monetary Policy Report, scheduled for release on Friday. The Federal Reserve Board will submit reports to Congress containing discussions of "the conduct of monetary policy and economic developments and prospects for the future."

The US Dollar may regain its ground due to heightened safe-haven demand, driven by rising concerns over potential US involvement in the Israel-Iran air war. US intelligence agencies believe that Iran has yet to decide whether to make a nuclear weapon, even though it has developed a large stockpile of the enriched uranium necessary to make a bomb, senior US intelligence sources said, according to The New York Times.

However, the report also indicates that Iran could shift toward producing a bomb if the US military attacked Iran's uranium enrichment site Fordo, or if Israel killed Iran's supreme leader, Ayatollah Khamenei. The US Senate Intelligence Committee Chair noted that President Trump will give Iran the last chance to make a deal to end its nuclear program. Trump would likely delay his final decision on launching strikes for up to two weeks.

The Greenback received support from the cautious remarks from the Federal Reserve (Fed) Chair Jerome Powell in a post-meeting press conference on Wednesday. Powell noted that inflation remains somewhat above the goal and could rise in the future. He highlighted the importance of the current policy stance that leaves the central bank well-positioned. He cautioned that ongoing policy uncertainty will keep the Fed in a rate-hold stance.

The US Federal Reserve (Fed) announced to leave the interest rate unchanged at 4.5% in June as widely expected. However, the Federal Open Market Committee (FOMC) still sees around 50 basis points of interest rate cuts through the end of 2025.