Dollar Strengthens, Safe Havens Dominate
The dollar index (DXY) held around 98.5 on Tuesday (March 3), after surging nearly 1% in the previous session. This strengthening was driven by safe-haven flows as market participants assessed the risk of further escalation in the US-Israel conflict against Iran as still high, leading to increased demand for defensive assets.
Cautionary sentiment strengthened after signs emerged that Washington was preparing to escalate operations in the near future. Reuters reported that US operations in Iran (in the latest conflict update) included attacks on strategic military infrastructure, including elements related to missile capabilities and defense assets—maintaining high geopolitical uncertainty.
The dollar also received support from rising inflation expectations as energy prices rose due to the conflict. These concerns have led the market to assess the likelihood of an interest rate cut in the near future as energy cost pressures could potentially curb the pace of inflation decline.
Correspondingly, market participants shifted their expectations for the Fed's interest rate cut: expectations for the next cut are likely to be pushed back to September from July, although the market is still pricing in two 25 basis point cuts by the end of the year. At the same time, rising energy costs and inflation risks are weighing on the currencies of major energy importing countries—especially Europe and Japan—resulting in a relatively stronger USD. (asd)
Source: Newsmaker.id
