The US dollar rises and falls as the Middle East peace reduces the Fed’s hawkishness
This week, the US dollar took a back seat as reports of an Israeli-Iranian ceasefire boosted global markets. Despite the fact that Federal Reserve Chair Jerome Powell stated that interest rates would remain high for the foreseeable future, investors focused on reducing global tensions. What happened? The US Dollar Index has plummeted significantly, to roughly 97.65, its lowest level since early June.
Fed’s hawkishness takes a back seat
Traders wanting to take on greater risk mostly ignored Powell’s assertions that the Fed would be data-driven and not rush to lower interest rates. Powell’s hawkish tone would generally boost the dollar by indicating that monetary conditions are tightening. However, when the Middle East crisis subsided, investors became more comfortable with stocks and commodities, reducing demand for the US dollar.
Market behavior is influenced by risk-taking sentiment.
The news of Israel and Iran’s truce, which disseminated swiftly on major news outlets such as Reuters, had an immediate calming effect. The dollar and gold, both safe-haven assets, sank, while equities and oil, which are risky assets, surged again. According to a recent Bloomberg story, market volatility has decreased, as has geopolitical danger.
What’s next for the dollar?
The Dollar Index has fallen below the key 98.00 level, and traders are now seeking for the next level of support at 97.00. However, technical indicators such as the RSI approaching oversold territory suggest that you should proceed with caution. The US dollar may struggle to gain ground in the near future unless new economic data or escalating tensions cause a shift.