The U.S. dollar made modest gains early Wednesday but stayed close to multi-week lows amid easing geopolitical tensions in the Middle East, which reduced demand for the currency’s safe-haven status. By 08:20 GMT, the Dollar Index inched up 0.2% to 97.665.
Markets Await Powell’s Second Appearance
The dollar’s recent upward momentum weakened after President Donald Trump announced a ceasefire between Israel and Iran. Although initial breaches occurred on both sides, hostilities seemed to calm by Wednesday morning, encouraging investors to embrace riskier assets once again.
Attention now shifts to Federal Reserve Chair Jerome Powell, who is slated for his second Senate testimony this week. During his session with the House Financial Services Committee on Tuesday, Powell downplayed the immediate need for interest rate cuts, highlighting inflation concerns linked to Trump’s tariff policies. However, he conceded that a cooling labor market and easing inflation could pave the way for possible rate reductions later in the year.
Analysts at ING cautioned about a “significantly negative scenario for the dollar” should the Fed adopt a more dovish approach or if doubts about its independence deepen.
Euro and Pound Show Minor Pullbacks
- The EUR/USD pair slipped 0.1% to 1.1599, just shy of its highest point in years. ECB Chief Economist Philip Lane emphasized that the bank would respond only to “significant” inflation changes, suggesting steady policy following the recent rate cut.
- GBP/USD edged down 0.1% to 1.3613, slightly below Tuesday’s peak of 1.3648, marking its strongest level since January 2022.
ING analysts suggest that the euro’s recent advance could stall without fresh macroeconomic drivers, especially from the United States.
Yen Weakens as Aussie Comes Under Inflation Pressure
- USD/JPY climbed 0.3% to 145.31 as the yen softened amid the easing Middle East tensions. Bank of Japan officials also hinted at keeping interest rates steady amid ongoing uncertainty about U.S. tariff impacts.
- USD/CNY dipped marginally to 7.1708.
- AUD/USD dropped 0.1% to 0.6495 after Australia’s headline Consumer Price Index (CPI) reached a seven-month low, while trimmed mean inflation fell to its lowest level in three years, putting additional pressure on the Australian dollar.