Dollar Strengthens Slightly, Risk Sentiment Remains Cautious
The US dollar strengthened slightly against most G10 currencies on Tuesday (May 19), as President Donald Trump's decision to hold off on attacking Iran failed to revitalize risk appetite. The Bloomberg Dollar Spot Index rose 0.1% after briefly breaking a six-day winning streak on Monday, while the market remained awaiting concrete developments in geopolitical terms.
The dollar also received support from the bond market. The 10-year US Treasury yield rose 1 bps to 4.60%, maintaining the attractiveness of dollar assets as investors continued to assess the risks of energy inflation and the outbreak of Middle East conflicts. OCBC assessed that risk sentiment remains "weak," so the dollar is likely to remain strong until there is clearer progress.
In the G10, the weakness was most visible in the Australian dollar. AUD/USD fell 0.5% to 0.7136, with the 0.7102 area (April 29 low) considered support. RBA official Sarah Hunter announced the risk of Australia's inflation expectations being "elevated," and the central bank assessed that a third consecutive interest rate hike would give the board room to fine-tune household and business responses to the fuel price shocks stemming from the Middle East conflict.
Sterling corrected slightly after a strong rally the previous day. GBP/USD fell 0.2% to 1.3414 ahead of the release of UK employment and wages data. The pound briefly strengthened 0.8% on Monday after Andy Burnham, considered the favorite to replace Keir Starmer, stated he would not change the government's borrowing limit if in power, easing bond market concerns.
In Asia, USD/JPY rose 0.1% to 158.93, reflecting yield differentials that still favor the dollar. Meanwhile, EUR/USD fell 0.1% to 1.1642, and USD/CHF rose 0.2% to 0.7856.
Ayu from Newsmaker believes the dollar's future direction will be determined by two factors: the extent to which risk-on sentiment truly recovers, and whether US yields remain high amid the risk of energy inflation. If there is no clear direction for sentiment, the dollar is likely to remain strong as a "safe haven" asset in the short term. (asd)*
Source: Newsmaker.id
