Dollar Retreats as Middle East Pause Lifts Risk Appetite; Central Bank Meetings in Focus

Dollar Retreats as Middle East Pause Lifts Risk Appetite; Central Bank Meetings in FocusLONDON/NEW YORK/SINGAPORE – July 29, 2026 – The U.S. dollar softened against major currencies this week as a temporary pause in U.S. military strikes in Iran drove oil prices sharply lower and revived investor risk appetite, just as global markets turned their attention to a密集 schedule of central bank policy meetings.

The dollar index, which measures the greenback against a basket of six major currencies, slipped to around 101.35 on Tuesday, retreating from a four-week peak of 101.80 touched in late June. The pullback came after the U.S. military temporarily halted its two-week-long bombing campaign in Iran over the weekend, prompting Brent crude to tumble as much as 7.5% to $89.42 per barrel. Tehran signaled it would reciprocate with a halt to its own attacks as long as the U.S. maintained the pause, raising hopes for renewed diplomatic efforts to de-escalate the conflict

Currency Markets React

Against the Japanese yen, the dollar fell 0.2% to 163.53 yen on Monday, marking its steepest daily decline since July 10. The yen has been pinned near 40-year lows against the dollar in recent weeks, with traders remaining on alert for possible intervention by Japanese authorities. Japanese Finance Minister Satsuki Katayama reiterated on Tuesday that Tokyo’s stance of responding to currency moves as needed remained unchanged.

The euro gained ground, rising 0.3% to $1.1404, while sterling advanced 0.1% to $1.333, recovering from multi-week lows touched last week. The Norwegian crown strengthened 0.4% to 9.567 per dollar, buoyed by the rebound in oil prices that has improved the outlook for the energy-exporting economy

Fed Rate Hike Odds in Focus

All eyes are now on the Federal Reserve, which concludes its two-day policy meeting on Wednesday, July 29. With new Fed Chair Kevin Warsh offering few clues on the policy outlook, markets have dramatically recalibrated rate expectations this month. According to CME Group’s FedWatch tool, traders see roughly a one-in-three chance of a quarter-point rate hike on Wednesday—up from a 16% probability a week ago but down from 37% at the end of last week. LSEG data showed markets pricing a nearly 40% chance of a 25-basis-point increase.

“It could be that the market is not particularly well-informed after this meeting because Warsh doesn't like to give forward guidance, and there is so much uncertainty, particularly with respect to how long the Iran war will last,” said Jane Foley, head of FX strategy at Rabobank.

Bullish bets on the dollar against other major currencies climbed to their highest level since 2015, with speculators’ net long positions surging to $45.37 billion in the week ended July 20, according to Commodity Futures Trading Commission data. However, analysts warned that stretched positioning could trigger a sharp unwind if policymakers signal a more dovish approach

Yuan Shows Resilience

China’s yuan eased slightly from a one-week high on Tuesday, last trading 0.08% lower at 6.7680 to the dollar, after briefly hitting its strongest level since July 21. The People’s Bank of China set the midpoint rate at 6.7928 per dollar on Tuesday. The CFETS人民币汇率指数, a measure of the yuan’s strength against a basket of currencies, rose to 102.75 for the week ended July 24, up 0.33 from the prior week, while the BIS currency basket index reached 110.55 and the SDR basket index hit 97.33—the highest since February 2023. Analysts at Huatai Futures noted that pressure on the yuan is mainly from a stronger dollar and higher oil prices rather than domestic economic issues, adding that the weakness is well managed and reflects external conditions rather than a trend of sustained depreciation.

Singapore Surprises with Tightening

In a notable development, the Monetary Authority of Singapore (MAS) unexpectedly tightened monetary policy on Monday, marking its second adjustment in just three months in response to persistent inflationary risks from elevated energy prices. The MAS said it would slightly increase the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band while keeping the width and centre point unchanged. The Singapore dollar firmed about 0.15% against the U.S. dollar following the announcement. Of the 16 analysts polled by Reuters ahead of the review, only four had forecast a tightening, making the move a surprise to the market

Bank of England and Bank of Japan Ahead

The Bank of England and Bank of Japan are widely expected to keep interest rates unchanged at their meetings on Thursday and Friday, respectively, while maintaining a cautious stance on inflation. The BOJ is expected to leave the door open to further rate hikes to arrest the yen’s decline, though policymakers are likely to remain ambiguous on the pace and timing of any moves. Verbal efforts to support the Japanese currency have so far yielded muted results.

Investors will also look to U.S. second-quarter GDP data and the Fed’s preferred inflation gauge—core PCE inflation—due later this week for further clues on the health of the world’s largest economy

About This Report

This currency market update is compiled from Reuters and other leading financial news sources for the period of July 27–29, 2026.

Media Contact:

[Name] Chloe

[Title] sales mananger

[Email] chloe@kebonfirstaid.com

[Website URL] www.kebonhealthcare.com