Dollar Rises on Fed Uncertainty, Skepticism Over Middle East Ceasefire
The US dollar is gaining strength ahead of the Federal Reserve's upcoming rate decision, despite de-escalation in the Middle East conflict. The market is not yet pricing in a complete end to the conflict, and growing uncertainty over the Fed's move is supporting the greenback.
A break below 1.137 will be a signal to sell EUR/USD. Investors are not rushing back to the TACO trade due to the fragile ceasefire in the Middle East. Tehran continues to use drones to attack Gulf countries, keeping markets skeptical about a lasting truce.
The probability of a Fed rate hike in July is increasing, with 38% odds, according to HSBC. MUFG also argues that monetary tightening at the upcoming FOMC meeting cannot be completely ruled out, citing Kevin Warsh's emphasis on returning inflation to the 2% target.