The Dollar eased from its 10-month highs on Monday, marking a cautious start to a week packed with central bank meetings amid the backdrop of the US-Israel conflict with Iran.
The US Federal Reserve, European Central Bank, Bank of England, and Bank of Japan are set to hold their first policy meetings since the Middle East tensions escalated, providing investors insight into how policymakers are assessing the effects of rising oil prices on inflation and economic growth.
As trading began in the European session, the Dollar index was slightly weaker at 100.27, staying below the 10‑month peak reached on Friday, Reuters news agency reports.
The greenback has gained from a flight to safety since the US and Israeli strikes on Iran started at the end of February, while other major currencies like the Euro have been weighed down by their economies’ reliance on imported oil.
Since the conflict began, investors have largely closed out their bets against the Dollar, according to weekly data from the US markets regulator.
Meanwhile, the Euro recovered from a 7½‑month low reached earlier in the session, trading 0.25% higher at $1.1442, while the British Pound rose 0.23% to $1.3252, remaining close to the 3½‑month low it touched on Friday.
Over the weekend, Trump urged allies to help safeguard the strait, noting that his administration is in discussions with seven countries on the matter. The Wall Street Journal reported that Washington could announce as soon as this week that several nations have agreed to escort vessels through the waterway.
However, oil prices kept rising as geopolitical tensions remained elevated and uncertainty persisted over when the war, now in its third week, might conclude.
Furthermore, the Australian Dollar rose 0.55% to $0.7018, supported by expectations of a hawkish move at home, with the Reserve Bank of Australia (RBA) widely anticipated to tighten policy on Tuesday.
Market pricing suggests there is about a 72% probability that the RBA will implement a 25‑basis‑point rate increase.
“We are now pencilling two more hikes, one this week and another in May” stated Carol Kong, a currency strategist at Commonwealth Bank of Australia.
In Australia, inflation was already elevated before the Middle East conflict began, and the recent surge in energy prices adds further upside risk to inflation.