The United States dollar index (DXY) enters the week below 10-month highs, easing 1% last week as escalating conflict in the Middle East and growing inflation risks weigh on currency markets.
Although the Greenback briefly dipped below the 100 mark, it has since stabilised as rising U.S. Treasury yields and safe-haven demand underpin the currency.
The shift suggests the U.S. dollar is no longer trading purely on rate differentials, but rather a broader mix of positioning, expectations and geopolitical developments.
The Federal Reserve left its benchmark rate unchanged at 3.50%–3.75%, while signalling a cautious stance.
Updated projections showed higher inflation expectations, and Chair Jerome Powell warned that rising energy prices could complicate the disinflation process.
The central bank’s message remains clear - if inflation does not ease convincingly, rate cuts may be delayed.
According to the CME Group FedWatch Tool, markets are now pricing a 55.2% chance that Federal Reserve policymakers will hold rates steady through January 2027.
Euro capped below 1.1600
The EUR/USD currency pair remains under pressure, trading near 1.1540 after failing to sustain a move above 1.1600 last week.
The pair continues to show a mild downside bias as the U.S. dollar regains traction.
While the Euro attempted a recovery earlier in the week, a lack of follow-through buying and persistent resistance have kept gains in check.
Focus now turns to support around 1.1400 as bearish momentum lingers.
Aussie slips despite RBA hike
AUD/USD trades around 0.7040, falling despite a recent rate increase from the Reserve Bank of Australia to 4.10%.
Domestic fundamentals remain supportive, including strong employment data and persistent inflation.
However, these factors are being overshadowed by global risk aversion.
Escalating tensions linked to Iran and rising oil prices are also driving safe-haven demand for the U.S. dollar, weighing on the Australian currency.
Sterling pressured by oil surge
GBP/USD has retreated below 1.3350 as risk sentiment deteriorates and the Dollar strengthens.
The Bank of England held rates steady in a unanimous decision, prompting markets to reprice expectations for further tightening.
Investors now anticipate additional rate hikes later in the year amid rising inflation risks.
Nonetheless, Sterling remains under pressure as oil-driven inflation concerns and U.S. dollar strength dominate market direction.
Dollar rebounds against Yen
The USD/JPY currency pair has climbed back toward 158.70, supported by renewed U.S. dollar strength and expectations of a prolonged pause from the Federal Reserve.
The Bank of Japan continues to signal a cautious but hawkish stance, suggesting further rate hikes remain possible if economic conditions stabilise.
While the Yen typically benefits from safe-haven flows, policy divergence and strong demand for U.S. dollar liquidity are currently the dominant forces driving the pair higher.
Economic Calendar Week Ahead
On Monday, the U.S. Chicago Fed National Activity Index will provide insight into economic momentum.
Tuesday will see a global round of S&P Global flash PMI releases across Australia, Japan, the eurozone and the UK, alongside U.S. construction spending and European consumer confidence.
Japan’s CPI data will also be closely monitored.
Wednesday brings U.S. PMI data, the Richmond Fed Manufacturing Index, and trade price indicators, while Australia’s CPI and commentary from a Reserve Bank official will be in focus.
UK inflation data is also scheduled.
On Thursday, attention turns to the European Central Bank’s general council meeting, U.S. jobless claims and Canadian wage figures.
Friday will feature speeches from Federal Reserve officials, UK retail sales and consumer confidence, China’s industrial profits and eurozone inflation expectations.
The week concludes on Saturday with the final reading of U.S. consumer sentiment, offering further clues on the resilience of the economy amid ongoing geopolitical uncertainty.
