Dollar Flat, Hormuz Risks and Central Banks in Focus
The US dollar moved directionlessly on Tuesday (March 17th) as investors shifted their focus to a series of central bank meetings, amid uncertainty surrounding the war in the Middle East and the outlook for oil prices. The dollar index edged up 0.05% to 99.90, after briefly touching 100.54 on Friday, its highest since May 2025.
Energy risks remained a key theme. Oil held above US$100 per barrel on supply concerns as the Strait of Hormuz remained largely closed, although crude futures fell in the previous session after several ships reportedly made it through. Iran also launched a new attack on the United Arab Emirates on Tuesday, the kind of attack on a US ally in the Gulf that President Donald Trump said was unexpected.
Markets are now looking for clues as to whether the world is returning to a 2022-style dynamic, with central banks pursuing an aggressive tightening cycle. The Fed is scheduled to announce its decision on Wednesday, followed by the ECB, the Bank of England, and the Bank of Japan the following day. All four are expected to hold interest rates, but investors will be closely monitoring the tone of their statements regarding their response to the shocks of war and energy inflation. Traders are now pricing in nearly two ECB rate hikes by 2026, a sharp reversal from the roughly 50% chance of a cut before the conflict.
In major currency markets, the euro fell 0.15% to US$1.1490, after touching US$1.1409 on Monday, its lowest since August 2025. The yen weakened to 159.31 per dollar, approaching the psychological level of 160, despite Japanese authorities' verbal warnings. Since the war began in late February, the yen has fallen more than 2% against the dollar. Bank of Japan Governor Kazuo Ueda said core inflation was moving toward its 2% target and emphasized that price increases need to be supported by wage growth.
Barclays believes further oil gains, a prolonged Hormuz shutdown, and a dovish BoJ meeting could push USD/JPY to test 160 and then the 2024 foreign exchange intervention area around 161. Japanese Finance Minister Satsuki Katayama reiterated that the government is ready to take decisive action to address market volatility.
Meanwhile, the Australian dollar remained virtually unchanged after the Reserve Bank of Australia raised interest rates in a narrow decision. The AUD was last up 0.05% at 0.7074 after strengthening to 0.7095 earlier in the session.
Source: Newsmaker.id
