Dollar Steady Awaits New Warsh Signals
The US dollar held steady on Tuesday (June 16th) after weakening sharply at the start of the week. Market participants began to hold off on new positions as the focus shifted from the initial euphoria of the US-Iran peace deal to a series of global central bank decisions, particularly the Federal Reserve, on Wednesday.
The initial US-Iran agreement had boosted risk-on sentiment and pressured oil prices as the market considered the Strait of Hormuz to be open for reopening. However, concrete details regarding sanctions relief, the full reopening of shipping lanes, and implementation mechanisms remained limited. This prevented the dollar's weakening from extending further.
The US Dollar Index moved relatively flat in London trading after hitting a 10-day low on Monday. EUR/USD edged up 0.2%, while market participants were hesitant to build aggressive dollar short positions due to the lingering risk of a hawkish signal from the Fed.
The Fed is widely expected to maintain its benchmark interest rate, but the primary focus is on the dot plot projections. If the latest projections indicate a tendency for higher interest rates for longer, the dollar could regain support. The persistently strong inflationary backdrop following the spike in energy prices caused by the Iran conflict is keeping markets cautious.
In the UK, the pound traded within a limited range ahead of the Bank of England's decision on Thursday. Markets expect the BoE to hold interest rates, as weak growth and tight fiscal space limit the central bank's ability to follow the tighter stance of some of its global peers. If the BoE signals dovishness, the pound risks losing support from interest rate expectations.
Meanwhile, the Bank of Japan raised its short-term interest rate by 25 basis points to 1.0%, its highest level in 31 years. However, the yen remained subdued as the market focused on the pace of the next tightening. USD/JPY remains near the psychological 160 area, indicating that expectations for a Japanese interest rate hike are not yet strong enough to significantly change the yen's direction.
The Australian dollar also held steady after the Reserve Bank of Australia paused its three-month tightening program and maintained its interest rate at 4.35%. For the FX market, the main picture is that the dollar is stabilizing as the euphoria surrounding the US-Iran deal begins to be digested, while the next direction will be determined more by the Fed, the dot plot, oil prices, and signals from other major central banks. (Arl)
Source: Newsmaker.id
