FOREX-Dollar firms near one-month highs ahead of Fed decision

Updates prices to European afternoon trade

By Siddarth S and Rae Wee

July 29 (Reuters) - The U.S. dollar edged up on Wednesday and firmed near one-month highs, as investors awaited a Federal Reserve interest-rate decision, in which some analysts expect a surprise hike.

Hostilities in the Middle East flared anew, sending oil prices higher, after joint strikes by U.S. and Saudi Arabia on Iran-backed groups in Iraq.

The strikes came hours after the U.S. military said it averted a surprise Iranian attack on U.S. troops in the region.

Moves in currencies were largely subdued as investors stayed on the sidelines ahead of the Federal Open Market Committee's decision, with markets pricing in a roughly 36% chance of a 25-basis-point hike. 0#USDIRPR

The dollar index =USD, which tracks the U.S. currency against a basket of six others, was up 0.05% at 101.46. It rose to 101.63 on Tuesday for the first time since June 25.

"For the dollar, if policy is left unchanged then the currency may weaken. But any material hawkish dissent would limit the damage, and the dollar may recover during the (Fed) press conference," Daragh Maher, senior FX strategist at HSBC, said in a note.

"A hike would be a clearer bull signal for the currency."

The euro EUR= edged down 0.09% to $1.1378, while sterling GBP= was down 0.04% at $1.3284, but remained near its weakest level since July 1.

The Canadian dollar CAD= strengthened 0.06% to C$1.4097 per dollar ahead of the release of the minutes from the Bank of Canada's July meeting later on Wednesday.

SWISS FRANC, JAPANESE YEN IN FOCUS

While the U.S. central bank is widely expected to keep rates unchanged, limited guidance from Chair Kevin Warsh, coupled with higher oil prices due to the re-escalation of tensions in the Middle East has prompted a growing number of brokerages to pencil in the risk of a surprise rate hike.

"We're going into this meeting with a round of one-in-three chance for a rate hike priced in. First time we've seen pricing like that for a while," Nick Rees, head of macro research at Monex Europe, said.

"There is genuine uncertainty around this meeting, and I would expect that to lead to some volatility on the outcome, whichever way it breaks."

The Swiss franc CHF= slipped 0.07% to 0.8199 francs per dollar, trading at more than one-year lows and has been one of the worst performing G10 currencies this year.

"Switzerland's low rate environment has made dollar/Swiss a very popular vehicle to express hawkish Fed views," ING analysts said in a note on Tuesday. "Were the Fed to blow the doors off with a hike....dollar/Swiss could be looking at 0.85 in August."

The franc had weakened to 0.85 last in April 2025.

The yen JPY= slipped 0.05% to 163.76 per dollar, but remained not far from a 40-year low and kept traders on alert for potential intervention from Japanese authorities to support it.

"There is a possibility that the FOMC's policy decision and the Chair's press conference could trigger a further strengthening of the dollar, pushing USD/JPY to 164," said Hirofumi Suzuki, chief FX strategist at SMBC.

Bitcoin BTC= rose about 0.7% to $64,260.41, while ether ETH= was down 0.65% to $1,904.18.

(Reporting by Rae Wee in Singapore and Siddarth S in Bengaluru; Editing by Amanda Cooper, Mrigank Dhaniwala and Arun Koyyur)

((rae.wee@thomsonreuters.com))