FOMC Risks: Is the Dollar Ready for Another Rally?U.S. Dollar Currency IndexTVC:DXYforexcitypro_leemeenalThe Federal Reserve does not need to raise interest rates for the dollar to strengthen. Traders only need to conclude that rate cuts are temporarily off the table. 📅 The most important event of the week is the FOMC decision on Wednesday, July 29, 2026, corresponding to 7 Mordad 1405. The Federal Reserve’s statement will be released at 21:30 Tehran time, followed by Kevin Warsh’s press conference at 22:00. The base case is for the Fed to maintain its target rate within the 3.50%–3.75% range. This time, however, the rate decision itself is only one part of the story. The market’s reaction will mainly depend on three factors: 1️⃣ The statement’s language regarding inflation and energy prices 2️⃣ The number of officials voting in favor of a rate increase 3️⃣ Kevin Warsh’s remarks about the future path of monetary policy 🔍 Why Does This Meeting Matter If Rates Remain Unchanged? The market has already priced in a large part of the unchanged-rate scenario. Therefore, keeping rates steady by itself may not create a sustainable directional move in the dollar. What matters is the type of hold delivered by the Federal Reserve: ⚪ A neutral hold means rates remain unchanged and the Fed provides little new information. 🦅 A hawkish hold means rates remain unchanged, but the Fed warns about inflation, oil prices, and the possibility of raising rates in the coming months. 🕊️ A dovish hold means rates remain unchanged, but the Fed emphasizes easing inflationary pressure, weakness in the labor market, or the possibility of lower rates. Traders should therefore avoid focusing exclusively on the headline rate decision. Rates may remain unchanged while a hawkish tone still sends the dollar higher and gold lower. 🛢️ How Can Oil Change the Dollar’s Direction? Oil prices are currently one of the most important external variables influencing US monetary policy. When oil becomes more expensive, transportation, production, and energy costs rise. This can push headline inflation higher and strengthen expectations of further rate increases. The transmission mechanism generally looks like this: 🛢️ Higher oil prices 🔥 Greater inflation concerns 📈 Rising short-term US Treasury yields 🏦 Higher probability of tighter Federal Reserve policy 💵 A stronger US dollar Conversely, a sustained decline in oil prices and an easing of geopolitical tensions could reduce the probability of further rate increases, push short-term yields lower, and limit upside pressure on the dollar. A short-lived spike in oil, however, is not necessarily enough to justify a rate hike. The Federal Reserve will focus more closely on the persistence of the energy shock and whether it passes through to wages, services, and inflation expectations. 📊 What Has the Market Priced In? Estimates differ depending on when they were calculated and which market instruments were used. However, they all suggest that the probability of a July rate increase is no longer zero. According to ANZ, OIS markets are pricing approximately 45 basis points of Federal Reserve tightening during 2026, while a 25-basis-point increase in September is almost fully priced in. Bank of America estimates the probability of a July hike at roughly 36%. Danske Bank puts the probability between 20% and 25%. Broader market pricing has also indicated a probability of approximately 30%–32% at certain points. These differences do not necessarily represent a contradiction. Interest-rate probabilities change constantly in response to oil prices, bond-market movements, inflation data, and trader positioning. The central point is that the market no longer views this week’s meeting as a completely certain and risk-free hold. 🏦 What Are the Major Institutions Expecting? ANZ’s base case is a hawkish hold. Under this scenario, rates remain unchanged, but the Federal Reserve signals that it is prepared to become more restrictive if oil prices continue to rise. ANZ believes this outcome could push the US Dollar Index back toward its year-to-date high near 101.80. If the Fed unexpectedly raises rates, DXY could also move above 102. Bank of America also expects rates to remain unchanged, but it considers the decision unusually close and sensitive. Its argument is that if the Federal Reserve’s inflation-fighting credibility is at risk, a preemptive increase could be more effective than waiting until September. Danske Bank is focusing more on the vote split than on the headline rate decision. It expects between two and four officials to support a rate increase. More hawkish dissenters than expected could lift US real yields and support the dollar, even if the final decision is to leave rates unchanged. ⚖️ What Is the Opposing View? Not every analyst is fully bullish on the dollar. Recent US inflation data have been softer than expected, while parts of the labor market have shown signs of slowing. If oil prices decline and tensions in the Middle East ease, the Federal Reserve may not need to raise rates at any point during the remainder of the year. Under these conditions, short-term US rates could decline and some long-dollar positions could be unwound. The bullish case for the dollar therefore depends heavily on energy prices remaining elevated. 🦅 Scenario One: A Hawkish Hold This currently appears to be the most likely outcome. Possible signals include: • 🔥 The statement emphasizes that inflation risks remain elevated • 🛢️ The Fed refers directly or indirectly to pressure from energy prices • 🗳️ Several officials vote in favor of a rate increase • 🚫 Warsh avoids signaling future rate cuts • 🏦 The Fed stresses that it remains prepared to act if necessary Potential market impact: 📈 DXY could move toward 101.80 and test the 102 level. 📉 EUR/USD would likely come under pressure. 🥇 Gold could correct as short-term Treasury yields rise. 💻 Technology stocks and other rate-sensitive assets could face renewed selling pressure. ⚡ Scenario Two: A Surprise Rate Increase This is not the market’s base case, but it can no longer be dismissed entirely. A 25-basis-point increase could initially trigger a sharp rise in Treasury yields, push DXY above 102, weaken EUR/USD, and create selling pressure in gold and equities. The market’s secondary reaction, however, would depend on Warsh’s explanation. If the hike is presented as a preemptive, one-time measure rather than the beginning of a broader tightening cycle, part of the dollar’s initial rally could fade during the press conference. ⚠️ For this reason, traders should avoid following the first move without confirmation, even if the Fed unexpectedly raises rates. 🕊️ Scenario Three: A Dovish Hold If the Federal Reserve emphasizes cooling inflation, weakness in the labor market, or the temporary nature of the oil shock—and relatively few officials vote for a hike—the market could begin unwinding its hawkish pricing. Potential market impact: 📉 The two-year US Treasury yield could fall. 💵 DXY could come under pressure. 📈 EUR/USD and gold could begin to recover. This scenario would gain greater credibility if oil prices were also declining. Without lower energy prices, the market may remain skeptical of a dovish Federal Reserve message. 👀 Three Indicators to Monitor After the Decision To understand the market’s real reaction, traders should not watch DXY in isolation. 1️⃣ Monitor the two-year US Treasury yield. This part of the bond market is highly sensitive to changes in expectations for Federal Reserve policy. 2️⃣ Watch DXY around 101.80 and 102. A breakout above these levels without confirmation from Treasury yields may not be sustainable. 3️⃣ Monitor the simultaneous reaction in EUR/USD and gold. If the dollar rises but gold or EUR/USD fails to confirm the move, the probability of an initial reversal may increase. ⏳ Why Should Traders Avoid the First Candle? The FOMC statement will be released at 21:30 Tehran time, but the press conference will begin 30 minutes later. During this interval, the market may revise its interpretation several times. For example, the statement could initially appear hawkish and send the dollar higher. However, if Warsh reduces the probability of a September hike during the press conference, the entire initial move could reverse. A more sustainable reaction normally emerges only after the market has evaluated three elements: 📄 The statement 🗳️ The vote split 🎙️ The Fed Chair’s explanation 🌍 The Bank of England and Eurozone Inflation On Thursday, July 30, corresponding to 8 Mordad, the Bank of England will announce its policy decision. The base case is for the Bank Rate to remain at 3.75%, unless new forecasts indicate that UK inflation could rise above 4%. If the Bank of England adopts a softer tone than the Federal Reserve, GBP/USD could come under pressure. On Friday, July 31, corresponding to 9 Mordad, the eurozone inflation report will be released. The market will focus on core inflation and the extent to which higher energy costs have passed through to other areas of the economy. If core inflation remains close to 2.4%, it could indicate that the second-round effects of the oil shock have not yet become widespread. Nevertheless, the European Central Bank’s future policy path will depend on more than one CPI report. Oil and natural gas prices are likely to remain critical factors. If the Federal Reserve stays hawkish while inflationary pressure in Europe eases, the resulting policy divergence could place additional downward pressure on EUR/USD. ✅ Conclusion The base case remains an unchanged rate decision, but the short-term distribution of risks is slightly tilted in favor of the dollar. The reason is straightforward: the market has largely priced in a hold, but it has not fully priced in a close vote, a hawkish statement, or a surprise rate increase. This bullish view is not unconditional. If oil prices decline, geopolitical tensions ease, and the two-year US Treasury yield falls after the meeting, a significant part of the bullish-dollar argument would disappear. The main trade this week is therefore not simply about buying or selling the dollar. The real question is whether the Federal Reserve views the oil shock as temporary—or as a persistent threat to inflation.