Dollar settles down but nears its 5-1/2 month high, Fed eyes the Mideast market

The Federal Reserve maintained that the rate-cutting cycle is on hold pending new economic data, which caused the dollar to retreat from its almost five-and-a-half-month highs on Wednesday. Major central banks’ outlooks for monetary easing remained largely unaltered.

Leading US central bank officials, such as Fed Chair Jerome Powell, withdrew their guidance on when interest rates might be lowered on Tuesday, stating instead that monetary policy needed to remain tighter for a longer period of time.

Powell “needed to come back into the center. He was definitely one of the more dovish voices out there,” stated Marvin Loh, senior macro strategist at State Street in Boston. “He can’t afford to be the outlier when he’s the chairman.”

“We pushed everything as hard as we could for now, which means from a yield perspective and a higher dollar perspective, we’ll consolidate and trade around the range,” Loh added. “We did build a lot of hawkishness over the course of the last six weeks.”

The euro increased by 0.2% to $1.0638, while the dollar index, which compares the value of the US dollar to six important trading partners, fell by 0.14%.

In an effort to deter Israel from a significant escalation, the United States and its allies planned new penalties against Iran in response to its unprecedented strike on Israel. Israel’s war cabinet was scheduled to reconvene on Wednesday to choose how to respond.

“On any escalation of the Middle East crisis, we would expect the U.S. dollar to benefit from safe-haven flows,” added Jane Foley, senior forex strategist at Rabobank.

Even though the route for prices is still rocky, European Central Bank officials continued to argue on Tuesday for a June interest rate decrease as long as inflation stays on schedule to decline back to 2% by the following year.

“We think that the potential for BoJ to intervene to bolster the yen appears less evident, given that the dollar is strengthening on a relatively more hawkish Fed,” mentioned Yvan Berthoux, forex strategist at UBS Investment Bank.

Nonetheless, the Bank of Japan (BOJ) may intervene at any time, market players boosted the stakes for a potential intervention to support the Japanese currency, citing the 155 level from the previous 152.

“Rhetoric from officials has been more focused on speed of a move rather than levels themselves,” added Kieran Williams, head of Asia FX at InTouch Capital Markets.