Dollar Index Holds at 99!
The dollar index held around 99 on Friday and is on track to gain more than 1% this week, supported by safe-haven flows amid escalating Middle East conflicts and rising oil prices that have again shaken financial markets. Demand for defensive assets increased as geopolitical uncertainty widened volatility across assets.
The US-Israel offensive against Iran entered its seventh day, while Tehran launched a new wave of missile and drone attacks in the Gulf region. US President Donald Trump also expressed his desire to play a role in the selection process for Iran's next leader, while considering Mojtaba Khamenei, the son of the late supreme leader, as a less likely choice.
Rising oil prices heightened concerns about a resurgence in global inflation, which in turn led markets to believe the Federal Reserve would be more cautious in easing policy. Expectations of higher and longer-lasting interest rates tend to support the dollar through yield differentials and liquidity preferences.
This pressure is most pronounced on the currencies of oil-importing countries and regions, as rising energy costs could worsen trade balances and weigh on growth prospects. Within this framework, the dollar received additional support from investor repositioning regarding the risk of near-term stagflation.
The market also shifted its expected timing for the Fed's interest rate cut. Expectations for the next rate cut were pushed back to September or October from the previous projection in July, in line with rising energy-driven inflation risks and heightened geopolitical uncertainty.
Throughout this week, the dollar's most pronounced strengthening occurred against the euro. This movement was attributed to Europe's sensitivity to energy, given its heavy dependence on oil supplies from the Middle East, which means that energy price shocks tend to be more quickly reflected in currency sentiment and valuations.
Going forward, market participants will monitor the direction of the conflict and oil price dynamics as key drivers of FX volatility, along with changes in the pricing of Fed policy expectations. The combination of risk-off, energy, and yields has the potential to remain a dominant factor in the dollar's movements in the near term. (asd)
Source: Newsmaker.id
