"The dominant force in play remains the Middle East conflict, which has kept oil prices elevated and inflation expectations firm. Reports that Washington is assembling a coalition to escort vessels through the Strait of Hormuz could offer some relief for the oil market and could weigh on the dollar."
"Yet the underlying support for the dollar persists, as higher energy costs feed directly into inflation expectations and push back the timeline for Federal Reserve interest rate cuts. As the FOMC meeting this week draws closer, markets are focused on Chair Powell's remarks regarding inflation as well as the Federal Reserve's economic projections."
"A hawkish stance from the Fed would likely extend dollar strength and lift yields further, while any softening could quickly place selling pressure on the dollar and erode the recent gains."
The dollar index retreated slightly but maintained proximity to multi-month highs as investors awaited the Federal Reserve's interest rate decision. Middle East conflict continues driving elevated oil prices and firm inflation expectations, providing underlying support for the dollar. A potential U.S.-led coalition to escort vessels through the Strait of Hormuz could ease oil market pressures and weigh on the dollar. However, higher energy costs sustain inflation expectations and delay Fed rate cut timelines. Recent economic data showed sticky core PCE inflation, lower GDP growth, and rebounding job openings. The Fed's stance this week will prove decisive: a hawkish approach would extend dollar strength and lift yields, while softening could trigger selling pressure and erode recent gains.
Read at London Business News | Londonlovesbusiness.com
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