The US Dollar (USD) has stabilized and strengthened against major currencies, with the US Dollar Index (DXY) rising to the 100.00 psychological mark, up over 0.20% for the day, as markets turn risk-averse due to surging oil prices and ongoing conflict in the Middle East [2][3][6]. The USD gained ground following fading expectations for near-term Federal Reserve (Fed) interest rate cuts, as inflation concerns mount amid disruptions in the Strait of Hormuz, a key chokepoint for global oil supply [1][2][3][4][5]. The Fed is widely expected to keep its benchmark interest rate unchanged in the 3.50%–3.75% range at Wednesday’s meeting, marking the second consecutive pause after its previous easing cycle, according to the CME FedWatch Tool [1][5].
Safe-haven flows have benefited the USD, pushing EUR/USD below 1.15, while the Pound Sterling (GBP) underperformed against its peers, trading down 0.27% to near 1.3280 against the USD [4][6]. The Swiss Franc (CHF) remains flat around 0.7880, with its upside capped by the Swiss National Bank's (SNB) willingness to intervene in FX markets to prevent sustained currency appreciation and potential deflationary pressures [1]. Silver (XAG/USD) also came under pressure, trading around $80.80 per troy ounce, as fading Fed rate cut bets and rising energy prices diminished prospects for near-term monetary easing [5].
Oil prices, after declining sharply on Monday due to eased supply concerns, rebounded with West Texas Intermediate (WTI) trading near $96, up about 3% on the day [2]. US Treasury Secretary Scott Bessent stated that the US is allowing Iran to continue shipping crude through the Strait of Hormuz, while President Donald Trump is seeking international support to safeguard commercial activity in the waterway [1][5]. EU foreign policy chief Kaja Kallas emphasized diplomatic solutions for the Strait of Hormuz, noting that "this is not Europe's war" [2].
Analysts, including Commerzbank’s Antje Praefcke, highlight that interest rate differentials and real interest rates could regain importance for exchange rates in the coming weeks, especially if the war drags on and energy prices remain high [4]. Technical analysis suggests the DXY’s near-term bias is mildly bullish, but momentum may be fading, with buyers waiting for follow-through beyond 100.50 for further gains [3]. The market is closely watching central bank meetings, with the Fed, SNB, BoE, and BoJ all expected to keep rates unchanged, while the Reserve Bank of Australia (RBA) raised its Official Cash Rate to 4.10% [1][5][6].
Market reactions include US stock index futures losing between 0.4% and 0.5%, and the USD Index up about 0.1% at 99.90 [2]. The GBP/USD pair weakened further as the US Dollar recovered, and investors await UK employment data for additional cues [6].
CONCLUSION
The US Dollar has strengthened amid heightened geopolitical risks and surging oil prices, with markets expecting the Fed to hold rates steady. Safe-haven flows and fading rate cut bets have pressured other major currencies and precious metals. The ongoing Middle East conflict and central bank decisions remain key drivers for currency and commodity markets in the near term.