Dollar gains ahead of expected Fed rate hike

The US dollar is trading stronger against all major currencies in early North American dealings. Its biggest advances are against the Japanese yen and the New Zealand dollar, while the smallest move higher is versus the euro.

The strength comes alongside higher Treasury yields, crude oil holding above $102, and US stock futures pointing modestly lower.

This all sets the stage for the Federal Reserve's rate decision tomorrow. The market overwhelmingly expects a 25-basis-point increase, which would put the target range at 3.75%–4.00%. That would mark the first rate hike since July 2023.

The decision is due at 2:00 PM ET on Wednesday, with Fed Chair Kevin Warsh's press conference following at 2:30 PM ET. The meeting also brings updated economic projections and a fresh dot plot. Beyond the anticipated hike, traders will watch for signals on whether this is a one-off move or the beginning of a sustained tightening cycle.

In the morning video above, I analyze the three key currency pairs—EURUSD, USDJPY and GBPUSD—from a technical standpoint. What levels matter? What could shift the bullish or bearish bias? Where should buyers and sellers look to enter—and where should they exit if the price action turns against them?

The USD is stronger

The dollar's percentage moves against the major currencies are as follows:

• JPY: USD +0.29%
• NZD: USD +0.21%
• CAD: USD +0.12%
• AUD: USD +0.11%
• CHF: USD +0.10%
• GBP: USD +0.08%
• EUR: USD +0.06%

The dollar is the strongest currency overall, while the yen is the weakest among the majors.

For clarity, USDJPY, USDCHF and USDCAD are quoted with the dollar as the base currency. When those pairs climb, the dollar is appreciating.

EURUSD, GBPUSD, AUDUSD and NZDUSD have the foreign currency as the base. When those pairs decline, the dollar is strengthening.

US stocks are slightly lower in premarket action

As of 7:45 AM ET, US futures indicate:

• Dow Industrial Average: −93.20 points
• S&P 500: −3.00 points
• Nasdaq 100: −9.41 points

The pullbacks are fairly mild following Monday's sharper losses in AI, semiconductor and other large-cap technology shares.

The 10-year Treasury yield's move above 5% remains a worry for growth stocks. Higher yields raise the discount rate on future earnings, which can weigh on companies with rich valuations.

Middle East tensions keep supporting oil

Middle East risks stay elevated as Iran-backed Houthi forces continue their offensive in Yemen, increasing pressure on Saudi Arabia and regional shipping routes.

The Houthis fired another wave of missiles and drones at Saudi Arabia, including an attack on a military airbase at Khamis Mushait. Saudi officials reported 13 civilians injured.

The group is also strengthening its positions along Yemen's western coast after taking Perim Island near the Bab el-Mandeb Strait. That strategic spot sits at the entrance to the Red Sea, a key route for oil and commercial shipping between the Indian Ocean and the Suez Canal.

These developments are especially significant because Saudi Arabia's East-West pipeline remains largely offline after last week's attack. Normally, that pipeline lets Saudi crude bypass the partially disrupted Strait of Hormuz and reach export terminals on the Red Sea.

In the meantime, Gulf states postponed planned talks with Iran about reopening the Strait of Hormuz, with no new timetable set. Tanker-tracking data show some signs of traffic recovering, but oil and gas flows are still well below normal levels.

The combination of restricted shipping through the Strait of Hormuz, growing threats near Bab el-Mandeb and damage to Saudi export infrastructure continues to keep a geopolitical risk premium in oil prices.

WTI crude is trading at $102.24, up $0.85 or 0.84%.

China's economy shows mixed signals

China's latest economic data revealed a continued split between stronger industrial production and weak domestic demand. Industrial production rose 5.2% year over year, beating the 4.8% estimate and accelerating from 4.5% previously. However, retail sales increased only 0.4%, below the 0.7% estimate and the prior 0.6% gain. Fixed-asset investment contracted 7.2% year to date, compared with a 6.7% decline previously, while the unemployment rate rose to 5.3% from 5.2%. New-home prices also fell 0.17% during the month after declining 0.18% previously. The figures show that manufacturing—particularly technology and advanced production—is holding up better, but consumers, property and investment remain significant drags on the Chinese economy.

Chinese President Xi Jinping is scheduled to travel to Washington on September 24 for a summit with President Trump. Trade, technology restrictions, agricultural purchases and broader geopolitical tensions are expected to be among the major topics. Xi is also preparing to bring a large delegation of Chinese business executives with him.

European data was mixed

UK labor data showed a larger increase in jobless claims, although the unemployment rate unexpectedly declined:

• UK claimant count change: +27,800 versus +8,300 previously
• UK average earnings: +3.9%, unchanged from the prior reading
• UK unemployment rate: 4.9% versus 5.0% previously
• German wholesale prices: +0.9% month over month versus +0.1% previously
• French final CPI: +0.7%, unchanged from the preliminary estimate
• Italian trade surplus: €8.24 billion versus €4.77 billion previously
• Eurozone trade surplus: €5.0 billion versus €3.7 billion previously
• German ZEW economic sentiment: 34.7 versus 39.8 previously
• Eurozone ZEW economic sentiment: 25.8 versus 39.2 previously

The German and Eurozone ZEW readings point to a deterioration in investor confidence, likely reflecting higher energy prices, rising yields and continued geopolitical uncertainty.

European stocks are mostly lower

• Germany's DAX: −0.08%
• France's CAC: −0.27%
• UK's FTSE 100: −0.36%
• Spain's Ibex: +0.03%
• Italy's FTSE MIB: −0.01%

US Treasury yields are higher

The yield curve is moving higher, with the largest increases at the longer end:

• 2-year yield: 4.652%, +1.8 basis points
• 5-year yield: 4.754%, +2.6 basis points
• 10-year yield: 5.004%, +4.3 basis points
• 30-year yield: 5.374%, +4.6 basis points

The 10-year yield is back above the psychologically important 5.00% level. That is helping support the dollar while creating another potential headwind for stocks.

The steeper move at the long end also suggests that traders are concerned about the longer-term inflation outlook, particularly with oil prices remaining above $100.

Other markets

• Crude oil: $102.24, +$0.85 or +0.84%
• Gold: $4,283.10, −$14.70 or −0.34%
• Silver: $63.21, −$0.01 or −0.02%
• Copper: $6.4110, +0.10%
• Bitcoin: $76,895, −$1,290 or −1.65%

Gold is moving lower as both the dollar and Treasury yields rise. That is the more traditional relationship: a stronger dollar and higher yields make non-interest-bearing gold less attractive at the margin.

Bitcoin is also under pressure and is the weakest of the major markets shown above.

Today's US economic calendar

• 8:15 AM ET: ADP weekly employment pulse
• 8:30 AM ET: New York Fed manufacturing index
• 8:30 AM ET: Wholesale trade
• 8:55 AM ET: Redbook weekly retail sales
• 1:00 PM ET: US 20-year bond auction

The New York Fed manufacturing index is expected at 15.0, down from 20.6 previously.

The 20-year bond auction will also be closely watched after the 10-year yield moved above 5%. A weak auction could put additional upward pressure on longer-term yields.

However, the main event remains tomorrow's Federal Reserve decision. A 25-basis-point increase is largely expected. The bigger market reaction will likely depend on the dot plot, the updated projections and whether Kevin Warsh signals that additional rate increases are likely in the months ahead. The decision and statement are scheduled for 2:00 PM ET, with the press conference at 2:30 PM ET.