Oil Price Surge and Trade Policies Fuel Dollar Strength

The Federal Reserve may take an unexpected action as early as July due to surging oil prices and America's trade policies. The US dollar has strengthened against major global currencies, including the euro, despite hawkish comments from the European Central Bank (ECB). The ECB kept its deposit rate unchanged at 2.25% while leaving room for further rate hikes in the future.

According to the ECB President Christine Lagarde, several Governing Council members considered acting immediately but ultimately agreed to wait and observe, citing caution amid geopolitical uncertainties. This decision reflects the ECB's preference for avoiding prematurely tightening policy and potentially derailing a fragile economic recovery.

The EUR/USD fate is determined by events in Washington, not Frankfurt. Half of Federal Reserve officials expect a rate hike, while the rest anticipate rates to remain unchanged. The probability of a Fed rate hike as early as its July meeting has increased due to higher oil prices, which have breached the critical $100-per-barrel threshold.

The White House announced new tariffs of 10-12.5% on dozens of countries, covering more than 99% of total U.S. imports. These tariffs will replace the temporary 10% import duties set to expire on July 24. The market impact is limited due to the minimal difference between the new and previous rates.

The yen is experiencing its steepest single-week decline in nearly two months, as investors ignore verbal intervention from Japanese authorities and rumors that the Bank of Japan (BoJ) might tighten monetary policy sooner than expected. Economic analysis shows the BoJ now has another reason to act in June: a key inflation gauge rose to 1.6%, marking its first increase in three months.