Dollar Nears High, Investors Eye Iran and Fed
The US dollar held near a six-week high on Friday (May 22), as traders assessed the likelihood of a short-term deal to end the war in the Middle East and the potential for an interest rate hike by the Federal Reserve if inflation continues to rise.
Recent diplomatic developments indicated that Iran's Foreign Minister met with Pakistan's Interior Minister to discuss proposals for resolving the US-Israel conflict, according to Iranian media. However, disagreements persist over Iran's uranium stockpiles and control of the Strait of Hormuz.
Traders are increasingly concerned that continued energy disruptions will spill over into core consumer prices, which could trigger a tighter monetary policy response. An additional risk comes from the potential for further military action, with President Donald Trump's aggression against Iran a catalyst for interest rate volatility and prompting the Fed to consider a rate hike. Currently, Fed funds futures projects a 54% chance of a December rate hike.
The US dollar index (DXY), which measures the greenback against a basket of major currencies, rose 0.09% to 99.28. The euro weakened 0.12% to $1.1604, while the British pound edged up 0.08% to $1.344, despite data showing the biggest drop in retail sales in almost a year in April.
Currencies more vulnerable to high energy prices face growth pressures, strengthening the US dollar. The Australian dollar (AUD/USD) fell 0.27% to $0.7128.
The Japanese yen (USD/JPY) weakened 0.06% to 159.1 per dollar, despite Tokyo's possible intervention just weeks ago. The Bank of Japan is expected to raise interest rates gradually, while other central banks, including the ECB, are expected to move more quickly, making the yen less attractive to investors seeking yield. Japanese core inflation data showed a slowdown to a four-year low in April, adding to monetary policy uncertainty.
Key factors to watch: developments in US-Iran negotiations, the status of the Strait of Hormuz, global energy prices, and the direction of interest rate policy by the Fed and other central banks. (Arl)*
Source: Newsmaker.id
