USD: Conflict premium supports gains – ING

ING’s Chris Turner expects the Dollar to stay supported as the Middle East conflict keeps Oil prices elevated and markets await central bank responses. He sees this week’s FOMC meeting as Dollar-positive, with the Federal Reserve likely to push back against current rate-cut pricing. Turner notes DXY is testing the top of its nine‑month range near 100.35/40.

Dollar holds firm on conflict risk

"It looks like the market wants to hear news on a path to a ceasefire before removing the risk premium buoying energy and the dollar."

"But until there is some news of a negotiated settlement, the market this week will be focusing on the central bank response. Eight of the G10 central banks meet to set monetary policy this week."

"Regarding this week's FOMC meeting, we think the event risk is dollar positive. At the January FOMC meeting, the takeaway was that the Federal Reserve wanted to see clear signs of lower inflation before delivering further rate cuts."

"Events in the Middle East warn that US inflation will be heading to 3.5% and not 2.0% this summer. The FOMC will likely further question market pricing of another Fed rate cut this year, where around 23bp is still priced in by year-end."

"DXY is now at the top of the nine-month trading range at 100.35/40. A calmer equity environment this Monday morning suggests DXY may not be ready to break higher just yet."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)