US FX WRAP: Dollar slips ahead of Fed as lower oil prices and US yield adds pressure

DXY was slightly weaker as the continued drop in oil prices and yields weighed ahead of the FOMC meeting on Wednesday. Optimism over the pause in strikes leading to a reopening of the Strait of Hormuz increased on Tuesday, helped by reports that mediators of the ongoing conflict in the Middle East believe the US and Iran are close to a deal that would resurrect the failed MoU. While recent remarks from Trump have stated that the US and Iran are in talks, Iran has reportedly said it hasn't sought talks with the US in the past 16-17 days. Separately, US data showed Consumer Confidence in July actually fell despite expectations for a slight improvement. Concerns over current business conditions worsened, with consumers less optimistic about future business conditions. On Wednesday, the Fed is expected to leave rates unchanged at 3.50-3.75%, with money markets currently assigning a 36% chance of a hike on Wednesday, and 36bps of tightening currently priced in by year-end. Click here for the full Newsquawk Fed Preview.NZD, EUR, and CAD were the top gainers vs USD, while AUD lagged with modest weakness. Currency-specific newsflow was generally absent today, with geopolitics dominating headlines, whilst the USD specifics are likely to be the driver of FX moves on Wednesday. Overnight, we will get the Q2 and June inflation figures out of Australia. AUD/USD currently resides around 0.6976, failing to move below the 20 DMA of 0.6963.