The U.S. dollar rose slightly on Wednesday as investors awaited the Federal Reserve's interest rate decision, which is expected to be Jerome Powell's last in his role as Chair. Meanwhile, the war with Iran continues without clear signs of a near-term resolution.

Market activity was relatively thin due to a public holiday in Japan and general caution ahead of several central bank decisions over the next 48 hours. Investors are also bracing for major earnings reports from Amazon, Microsoft, and Meta, scheduled after Wednesday's closing bell.

The Euro fell 0.07% to 1.1705 dollars, while the British pound dropped 0.05% to 1.3513 dollars, both moving further away from their highs reached earlier this month. The Euro is currently trading approximately 1% below its level at the end of February when the war broke out, while the pound has remained largely unchanged.

The Federal Reserve's decision will dominate the headlines later today. While a rate hold is widely anticipated, markets are focused on how policymakers assess the war's impact on the economy and the future of Jerome Powell within the central bank.

Carol Kong, a currency analyst at Commonwealth Bank of Australia, noted: "The question is what Powell will do, as he remains a member of the Board of Governors until 2028. Will he resign after his term as Chair ends, or will he stay on and play a role similar to a 'shadow chair'?" She added that Powell previously indicated he would stay if he felt the Fed's independence was threatened, meaning his decision will likely depend on his assessment of that situation.

On the geopolitical front, efforts to end the war with Iran have reached an impasse. President Donald Trump expressed dissatisfaction with Tehran's latest proposal, demanding that the nuclear file be addressed from the outset.

Oil prices rose for the eighth consecutive day, marking the longest winning streak since May 2022 following the Russian invasion of Ukraine. The June contractexpiring Wednesdayrose 1% to 112 dollars per barrel, while the more active July contract recorded 105 dollars. This surge has dampened market confidence and supported safe-haven demand for the dollar.

Derek Halpenny, head of global markets research at MUFG, said: "With oil trading back above 110 dollars, the risk of more severe economic consequences during the summer is increasing." He added that Europe and Asia would be the most affected, and if the situation persists, the Euro and Asian currencies could face further downward pressure.

### Yen Under Pressure and Intervention Watch

The Japanese yen stabilized just below the 160 level against the dollar, despite hints from the Bank of Japan following its recent meeting that a rate hike is strongly possible in the coming months.

The yen was last at 159.63 per dollar, unchanged on the day but having lost about 0.6% this month and over 2% since the war began, largely due to Japan's heavy reliance on energy imports. Governor Kazuo Ueda confirmed the bank's readiness to raise rates to prevent energy price shocks from spilling into general inflation, provided the economic slowdown from the Middle East crisis remains limited.

Christopher Wong, a strategist at OCBC, commented: "There is a hawkish tone; the bank might have raised rates already if not for the war, but any future increases will likely be gradual." He added that the yen faces a floor near levels that might trigger official intervention, making a strong rally difficult to foresee currently.

Weekly data shows that investors are holding their largest short positions on the yen since late July 2024shortly after the last government intervention when the exchange rate crossed 161 yen per dollar. Traders remain on high alert for potential support from Japanese authorities, with 160 yen per dollar viewed as a critical threshold.

Elsewhere, the Australian dollar fell 0.26% to 0.7164 dollars following local inflation data that showed persistent price pressures, even though the core trimmed-mean inflation index came in slightly lower than expected.