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Dollar Inches Up as Gulf Tensions Boost Safe-Haven Currencies

The global central bank decisions set to take place in the next two weeks. They will have wide-ranging impacts on the currency market. The awaited decisions are attracting keen interest from traders, who are also watching the unfolding of U.S.-China trade talks as well as Wall Street earnings.

The U.S. dollar reached its highest position since Wednesday when it broke above the 108 yen mark. This is still, however, in the 107-109 region where it has traded before last month. The dollar index which compares the strength of the greenback against major rival currencies was little changed at 97.179 even after inching up 0.35% last week.

A lot of uncertainty in the foreign exchange market has caused a lot of safe-haven flows into the dollar. This is likely to rise further as the expected interest rate cuts by the Federal Reserve take place by only 25 basis points. This is according to Nick Twidale, director at Sydney-based trade financier, Xchange.

Geopolitical tensions escalated following a confrontation between the Iranian military and a British warship that took place on Friday. Footage shows Iranian military seizing a tanker in the Strait of Hormuz. This created fears in the most important route for the oil trade.

The Euro stood at $1.12, which is near critical chart support and could likely see more losses.

The Moment of Truth

Traders are expecting that central banks will either cut rates or provide accommodative policies in the next two weeks when major central banks meet. The European Central Bank (ECB) will meet on Thursday. Soon followed by the Federal Reserve Bank and the Bank of Japan next week.

Central banks will be forced to reveal their plans and policy intentions. This can be described as the moment of truth.

Pricing for a 50-basis-point Federal Reserve cut climbed last week after New York Fed President John Williams gave a dovish speech. However, the expectations were later thwarted after a Fed spokesperson stated that the remarks did not point to possible policy actions.

Forecast for 50-basis-point pricing has plunged from a high of 71% last week to nearly 18.5% on Monday.

Earnings from Inc and Caterpillar Inc will be good indicators of the United States’ economy health.

The Asian market focuses on developments from the protracted trade conflict between the United States and China. According to reports from Xinhua, China’s news agency, some Chinese firms were seeking to import U.S firm products. This might be a possible sign for eased tensions.

Investors are keen to see if Boris Johnson claims the Conservative party’s leadership on the ballot. As a result, the sterling held at $1.2502, maintaining a slippery slope as concern about hard Brexit looms.

In anticipation of the big risk events later in the week, the Australian market is still healing its wounds from Fed William’s backtracking.

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