Dollar Strengthens Ahead of PCE & GDP Data, Geopolitics Supports
The US dollar is on track for its best week since October, after market participants reduced expectations for a Fed rate cut and returned to safe haven assets amid rising geopolitical risks. The combination of solid US economic data and signals of tighter policy has given the dollar broad support.
This strengthening is evident in the dollar's position, which remains near a one-month peak around 97.89 (dollar index), with a weekly gain of more than 1%. Markets believe the strength in US data means the room for monetary policy easing is less wide than previously expected.
The Fed's tone is also a key factor. The latest meeting minutes showed that inflation concerns have not fully subsided, making a near-term interest rate cut unlikely—some policy views still point to a "hold on longer" stance if price pressures resurface.
On the other hand, geopolitical factors are adding another layer of support for the dollar. US-Iran tensions escalated after President Donald Trump said Iran only had 10-15 days to reach a nuclear deal, along with an increased US military presence in the region. Situations like this typically encourage capital inflows into the dollar, as it's perceived as safer when permits are increased.
The movement of major currencies reflects this sentiment. The euro weakened by around 0.8% throughout the week, while the yen was also under pressure, hovering near the 155 per dollar area. Pressure on the yen and euro emerged as markets weighed the risk of energy inflation if Middle East tensions persist, leading the dollar to reclaim its role as a dominant safe haven.
The next focus will be the release of US data, particularly Core PCE inflation and fourth-quarter GDP, which have the potential to strengthen or correct the narrative that "the Fed is not in a hurry to act." If the data returns to solid levels, the dollar will remain supported by short-covering and declining market confidence in aggressive interest rate cuts. (asd)
Source: Newsmaker.id
