Fed Holds Interest Rates, Dollar Strengthens as Iran Heats Up
The US dollar continued its rally on Wednesday (April 29th) after the Federal Reserve held interest rates at 3.50%–3.75%, but the decision was met with the largest dissent since 1992. The dollar index rose 0.3% to 98.90 at 2:47 p.m. ET, supported by a combination of signals of a tighter policy stance and increased market caution due to the Washington–Tehran diplomatic deadlock.
Within the FOMC, four officials differed: one supported a 25-bps cut, while the other three rejected the inclusion of an “easing bias” in the statement. The surge in oil prices related to the Iran war has depressed US headline inflation, narrowing the scope for policy easing amidst what has been described as “low hire, low fire” labor market conditions.
From a geopolitical perspective, media reports indicate that President Donald Trump has instructed his team to prepare for a prolonged blockade of Iran, as economic pressure to limit oil exports and force nuclear concessions. Trump was also reportedly dissatisfied with Iran's proposal to open the strait but delay the nuclear issue, while Axios reported that the Central Command was preparing a "short and powerful" strike option to break the deadlock if necessary.
In the G10 market, the euro fell 0.4% to US$1.1669 after German and Spanish data showed rising headline inflation, fueled by oil. The pound weakened 0.4% to US$1.3467, with focus on UK political dynamics. The yen weakened, with USD/JPY rising 0.5% to break through 160, after the Bank of Japan (BOJ) held interest rates and signaled readiness for future hikes. Markets are also monitoring the Fed leadership transition after the Senate Banking Committee approved Kevin Warsh's nomination for a full Senate vote.
The dollar's future direction is expected to remain sensitive to Powell's signals (including post-May 15 plans), Warsh's confirmation path, developments on the blockade and US-Iran negotiations, and oil movements, which contain inflation risks and shape interest rate expectations. (Arl)*
Source: Newsmaker.id
