- Safe haven demand, trade flows and changing FOMC expectations are driving the DXY.
- The yen could benefit from capital repatriation.
The dollar index is nearing the highs of its 11-month range as Donald Trump reports successful negotiations with Iran. The US president has declared that Iran has met most of its 15 demands. There are rumors of a ground operation with various objectives, ranging from the capture of Kharg Island with its oil infrastructure to the seizure of 1,000 pounds of uranium belonging to Tehran.
The White House's intentions only increase investors' nervousness, forcing them to flee towards the US dollar as a safe haven. At the same time, rising oil prices are driving demand for the dollar as the currency benefits from higher oil prices. A third supporting factor is the shift in the Federal Reserve's stance from imminent rate cuts to a willingness to raise rates to combat inflation.
Under such conditions, macroeconomic data and monetary policy are destined to take a backseat. Bloomberg experts expect employment in the United States to increase by 60,000 people in March, after a decrease of 92,000 in February. Unemployment, in his opinion, will remain at 4.4%. However, a growing number of FOMC officials see inflationary risks as a more pressing threat than a cooling of the labor market. As a result, the futures market is pricing in a 92% chance that rates will not fall in 2026, compared to just 4% before the conflict in the Middle East.
Meanwhile, rumors about Japan's activity in the oil market and intensified verbal interventions have contributed to the decline in USDJPY, which has moved away from the psychologically important level of 160.
Eurizon SLJ Capital believes that as the conflict escalates, the US dollar will strengthen against most currencies, but not against the US dollar. The yen could benefit from capital repatriation amid a broad-based decline in stock indices.
Despite attempts to rise, he remains under pressure. The precious metal has gone from being a safe haven asset to a source of liquidity. Investors are selling it to meet margin requirements on stocks and bonds, while central banks are selling it to support their economies and stabilize national currencies.
He FxPro Analyst team
