The U.S. dollar edged upward on Thursday, supported by safe-haven buying amid escalating tensions in the Middle East, shortly after the Federal Reserve’s recent policy meeting.
At 04:25 ET (08:25 GMT), the Dollar Index—which tracks the greenback against six major currencies—increased by 0.1% to 98.585. This positions the dollar for a weekly gain of around 0.9%, marking its strongest week since late January.
Middle East Conflict Drives Demand for Dollar
Ongoing airstrikes between Israel and Iran continued Thursday, stoking speculation that the U.S. might soon join the conflict. President Donald Trump told reporters Wednesday, “Nobody knows what I’m going to do,” when asked about U.S. involvement. He also hinted at missed chances for diplomacy with Iran.
Analysts at ING pointed out, “Geopolitical risks combined with high oil prices—both external to the U.S.—are making the dollar more attractive than other safe havens like the euro.” They added that the dollar’s upside potential remains intact.
Fed Holds Rates, Warns of Inflation Risks
The Federal Reserve kept interest rates steady as expected but Chair Jerome Powell warned that inflationary pressures could increase over the summer due to Trump’s tariffs impacting consumers. While the Fed projects two rate cuts in 2025, ING noted the central bank seems less concerned about economic growth and unemployment levels.
Euro Under Pressure, Eyes Weekly Loss
The euro declined 0.2% against the dollar to 1.1465, hitting a one-week low earlier in the session. It is on track for its largest weekly drop since February, mainly due to geopolitical concerns.
ING forecasts EUR/USD could fall further, targeting 1.140 in the near term, but expects buyers to return if tensions ease. “Unless there’s a sustained shift in commodity prices from geopolitical risks, these effects are likely temporary,” they said.
Other Currency Movements Ahead of BoE Decision
The British pound slipped 0.1% to 1.3410 ahead of the Bank of England’s announcement later Thursday. The BoE is expected to keep rates steady after a 25 basis point cut to 4.25% in early May. Investors will focus on voting details and guidance on future rate cuts, with two more cuts anticipated by year-end.
USD/CHF rose 0.1% to 0.8185 following the Swiss National Bank’s 25 basis point cut to 0%, signaling the possibility of returning to negative rates to combat inflation.
Asia-Pacific FX Overview
In Asia, USD/JPY edged up 0.1% to 145.31 amid limited safe-haven demand for the yen. USD/CNY stayed steady at 7.1912 ahead of the People’s Bank of China meeting later this week. Meanwhile, AUD/USD dropped 0.6% to 0.6473 after unexpectedly weak labor data from Australia’s May report.