The dollar index held steady on Monday amid continued concerns about the geopolitical situation in the Middle East.
The lack of progress in diplomatic talks could continue to fuel safe-haven demand. At the same time, markets could remain cautious amid Japanese intervention to support the yen, which could weigh on the dollar to a certain extent.
Meanwhile, markets are increasingly focused on upcoming US data that could influence Federal Reserve monetary policy expectations.
This week’s ISM Services PMI, JOLTs job openings, and other employment reports will provide a clearer read on the strength of the labour market and broader economic momentum. Any meaningful downside surprise could trigger a repricing in yields and pressure the dollar.
Current monetary policy expectations point to interest rates remaining unchanged until late next year. However, ongoing inflation concerns could continue to drive yields higher, supporting the dollar. In this regard, geopolitical developments could continue to drive sentiment as higher oil prices could fuel more inflationary risks, supporting both Treasury yields and the dollar, while a de-escalation would likely have the opposite effect.
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