US Dollar Weakens Near 101, Markets Eye Fed's Direction
The US Dollar Index (DXY) weakened near 101.00 during Asian trading on Wednesday (July 22nd). The DXY hovered around 101.15, as market participants weighed uncertainty over the Federal Reserve's interest rate direction amid escalating Middle East tensions.
Pressure on the US dollar emerged after weaker US inflation data eased expectations of an interest rate hike this year. Markets now expect the Fed to keep rates unchanged at its July 29th meeting.
According to the CME FedWatch Tool, the probability of the Fed keeping rates unchanged is around 74.9%, up from 61.5% the previous month. This condition weighed on the US dollar as expectations of a less hawkish monetary policy tend to reduce the greenback's appeal.
However, the dollar's weakness was still restrained by the escalating conflict between the United States and Iran. The US military reportedly launched attacks on Iran for the 11th consecutive night, with explosions occurring in the Tabriz region of northwestern Iran. Yemen's Houthi threat to close the Bab el-Mandeb crossing also adds to concerns about disruptions to global oil supplies and international trade.
In terms of market impact, the US dollar remains caught between two major sentiments. Weaker inflation data could weigh on the DXY as the likelihood of an interest rate hike diminishes. However, the Middle East conflict, the risk of energy supply disruptions, and rising oil prices could again support the dollar as a safe-haven asset. If tensions continue to escalate, volatility in the dollar, oil, gold, and risk assets could potentially remain high. (asd)
Source: Newsmaker.id
