Markets turn cautious as geopolitical risks rise before Fed rate decision

Financial markets turned cautious midweek as escalating tensions in the Middle East pushed investors toward safer assets.

Market participants also remained on the sidelines ahead of the Federal Reserve's interest rate decision and accompanying policy statement, due later in the American trading session.

The cautious approach has kept major currency pairs within relatively narrow trading ranges during the European session.

The US Dollar (USD) Index struggled to gain from the broader risk-averse mood.

The index remained steady at around 101.30 during the European session.

The dollar's limited reaction came as investors waited for the Federal Reserve's policy announcement.

The decision is expected to provide further direction for currency markets.

Euro holds near 1.1400

EUR/USD traded in a narrow channel at around 1.1400 early Wednesday.

The currency pair followed small gains recorded on Tuesday.

The euro remained relatively stable as investors avoided making significant moves before the Federal Reserve's announcement.

The pair's limited movement reflected the broader caution across financial markets.

GBP/USD also moved higher during the early European session.

The pair corrected higher and traded a few pips above the 1.3300 level.

The movements in the euro and British pound came as markets remained focused on the upcoming Fed decision and developments in the Middle East.

Australian inflation data weighs on the Australian dollar

Data from Australia also influenced currency market movements on Wednesday.

Annual inflation, measured by the change in the Consumer Price Index (CPI), declined to 3.8% in June from 4% in May.

The reported figure came in below the market expectation of 4%.

The Australian dollar remained under bearish pressure following the inflation data.

AUD/USD traded at a fresh two-week low near 0.6950 on Wednesday.

The decline in the currency pair came as the Australian dollar faced pressure during the European session.

The weaker inflation reading was among the key developments affecting the currency's performance.

Indian rupee traded lower

The Indian Rupee (INR) traded marginally lower against the US Dollar on Wednesday.

The move came after the rupee recorded gains for three consecutive days.

USD/INR rebounded to near 95.85, which marked the intraday high.

The pair's recovery came as oil prices rebounded strongly amid renewed geopolitical risks.

The rise in oil prices added pressure to the Indian Rupee.

USD/JPY trades near 163.50

USD/JPY edged lower during the European morning session on Wednesday.

The currency pair traded at around 163.50.

The move came as investors continued to monitor developments in the Middle East and awaited the Federal Reserve's interest rate decision.

The pair remained relatively close to this level as the market adopted a cautious stance ahead of the Fed announcement.

Middle East tensions push oil prices higher

Geopolitical developments in the Middle East added to market uncertainty on Wednesday.

The attacks came in retaliation for drone attacks by the Islamic Revolutionary Guard Corps (IRGC) on Saudi oil facilities.

Meanwhile, Iran claimed an attack on a US military base located in Jordan.

The latest developments have increased concerns about the widening regional conflict.

The renewed geopolitical risks have also contributed to a sharp recovery in crude oil prices.

Following a two-day decline, crude oil prices moved higher on Wednesday.

West Texas Intermediate (WTI) crude traded above $81 per barrel.

WTI prices rose nearly 4% on the day as markets reacted to the latest developments in the Middle East.

The increase in oil prices also influenced currency movements, including the Indian Rupee's performance against the US Dollar.