Dollar Weakens Slightly, Market Focuses on Central Bank Meetings and Hormuz Risks
The US dollar index weakened on Monday (March 16th) as the greenback's rally took a pause amid market focus on the Iran war and a series of central bank meetings this week. The DXY fell 0.5% to 99.87 at 9:46 a.m. ET, while the euro strengthened to US$1.1473 and the pound rose to US$1.3278.
The main focus is on the policy decisions of the Federal Reserve, the ECB, the Bank of Japan, and the Bank of England scheduled for this week. Market participants believe the surge in oil prices since the outbreak of the conflict has reopened inflation risks, particularly if supply disruptions from major producing regions continue through the Strait of Hormuz—a passageway that handles about a fifth of global oil flows.
The primary transmission channel is energy to inflation: higher oil prices could potentially restrain policy easing and keep borrowing costs high for longer. This could, in principle, support the dollar through interest rate differentials and capital flows, but the dollar weakened this session as the market tends to await clarity on the outcome of central bank meetings and concrete developments in Hormuz before adding to its positions.
On the geopolitical front, President Donald Trump pushed for the formation of a naval coalition to reopen Hormuz and said NATO should help, although there was no confirmation yet which countries agreed to the request. Trump also hinted at pressure on China, including threatening to cancel a planned meeting with President Xi Jinping if Beijing did not use its influence to help open the strait. Media reports indicated that some tankers bound for China were able to pass through, while others were hit by projectiles.
Going forward, the market will be monitoring central bank signals regarding responses to energy inflation, the direction of oil prices and the smooth flow of shipping in Hormuz, as well as international coordination (including the European Union's options) to restore shipping. These developments will determine whether the pause in the dollar's weakening continues or whether the rally resumes.
Source: Newsmaker.id
