Dollar holds near recent high as markets await Fed decision

The dollar's resilience reflects a sharp repricing of Fed expectations in recent months. Treasury yields have climbed steadily since April as the U.S.-Iran conflict stoked concerns about inflation and a hawkish debut from Fed Chair Kevin Warsh reinforced expectations of higher interest rates.

"Traders are taking steps to preserve liquidity and adding to dollar longs ahead of tomorrow's decision," said Karl Schamotta, chief market strategist at Corpay in Toronto.

"A rate hike is still not the base case for most investors, but the meeting is clearly live, and many are covering their tails," Schamotta said.

The Fed concludes its two-day policy meeting on Wednesday, with some major brokerages warning that policymakers could raise rates, given this month's surge in oil prices.

While oil prices have retreated after the U.S. paused attacks on Iran and President Donald Trump hailed "good talks" with Iran, yields remain near their multi-month highs.