The US dollar stabilised to a certain extent after a decline yesterday. Late in the previous session, the currency reacted to the changing expectations around the geopolitical developments in the Middle East.
US President Trump’s cancellation of regional strikes cooled demand for safe-haven assets, but underlying market caution remains.
Any confirmation of a durable agreement could further weigh on the dollar.
At the same time, the dollar could continue to find support from elevated inflation concerns and expectations surrounding monetary policy. Inflation remains above the Federal Reserve’s target, which could continue to fuel expectations for a cautious stance for the central bank. As such, the Fed is anticipated to leave interest rates unchanged at its meeting next week, while a rate hike remains a possibility in the near future. The latter could continue to support the US dollar and bond yields.
Attention now turns to consumer sentiment data as well as any further geopolitical developments, both of which could generate volatility across currency and bond markets.
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