Dollar Steady Amidst Middle East Conflict and Upcoming Central Bank Meetings
By Johann M. Cherian
Investors Watch for Signs of Escalation
The U.S. dollar maintained its value during a day of fluctuating trading on Monday, even as investors kept a close eye on the ongoing conflict between Israel and Iran. The situation has raised concerns that tensions could potentially escalate into a wider regional conflict, prompting investors to assess the implications for global markets.
Both Iran and Israel have intensified military actions against one another, leading to fears that Iran might attempt to disrupt the Strait of Hormuz, a critical corridor for global oil shipping. This could have severe implications for the global economy, particularly in relation to energy prices. Following a week that saw crude oil prices surge by 7% due to heightened conflict, prices continued to rise by 1% on Monday.
Currency Overview
In currency markets, the dollar was trading flat at 144.08 Japanese yen after earlier rising nearly 0.4%. The euro held steady against the dollar at $1.1555, while the greenback maintained its position against the Swiss franc at 0.811. However, an index tracking the dollar against six major currencies saw a slight dip of 0.1%, landing at 98.11. Risk-sensitive currencies, such as the Australian and New Zealand dollars, saw marginal gains, while the Norwegian krone strengthened by 0.3% to reach its highest value since early 2023. Win Thin, the global head of markets strategy at Brown Brothers Harriman, remarked that the dollar’s standing as a safe haven currency may soon be challenged. He added that a dovish stance from the U.S. Federal Reserve could lead to a further weakening of the dollar, especially amid the prevailing economic uncertainties.
Geopolitical and Economic Context
The geopolitical tensions surrounding U.S. President Donald Trump’s trade policies have added another layer of complexity for investors and central bank policymakers. The dollar has lost more than 9% of its value in 2025, with the market nervous about Trump’s impending trade deal deadlines. In particular, ongoing negotiations with major trade partners like the European Union and Japan have been closely monitored for any signs of progress.
Despite the dollar’s recent gains, analysts remain skeptical about its future trajectory until there is greater clarity regarding trade policies. At the same time, the euro has performed well, gaining approximately 11% this year, which has led to speculation about its potential to challenge the dollar’s dominance. Nonetheless, European Central Bank Vice President Luis de Guindos dismissed such speculation regarding a short-term challenge.
Central Bank Meetings on the Horizon
Central bank monetary policy meetings this week are expected to significantly influence market movements. The U.S. Federal Reserve is scheduled to announce its interest rate decision on Wednesday, where it is widely anticipated that the central bank will keep borrowing costs unchanged. Investors are particularly keen to hear the Fed’s insights regarding the recent data indicating a slowdown in economic growth amidst rising inflationary pressures.
Chris Weston, head of research at Pepperstone, noted that the Fed’s growth forecasts are likely to reflect a transition towards lower growth, which would keep its statements neutral.
The Bank of Japan will also be announcing its interest rate decision this week, with traders expecting no changes in policy, although speculation about tapering its government bond holdings is growing. Central banks in Britain, Switzerland, Sweden, and Norway are also set to reveal their policy decisions in the coming days.
As the market digests geopolitical developments and the outcomes of central bank decisions, the dollar’s resilience will be put to the test, indicating ongoing volatility in financial markets.
Reporting by Johann M. Cherian in Bengaluru; Editing by Shri Navaratnam and Jamie Freed