Middle East De-escalation Reverses Safe-Haven Bid
Last week’s geopolitical tensions had underpinned the greenback. But with President Trump celebrating the swift resolution between Israel and Iran—and expressing optimism over future diplomacy with Tehran—risk sentiment has turned. This has weakened the dollar broadly, especially as the market recalibrates expectations tied to global trade and monetary policy.
Traders are watching closely as the July 9 deadline for U.S. tariff negotiations approaches. Analysts suggest the deadline may be extended, which would likely reduce market stress but also weigh modestly on the dollar, reinforcing the view that DXY could remain under pressure unless new catalysts emerge.
Federal Reserve Policy Expectations Turn More Dovish
Dollar sentiment was further dented by dovish remarks from Fed officials Michelle Bowman and Christopher Waller. Most notably, Fed Chair Jerome Powell’s testimony on Tuesday included an acknowledgment that recent inflation pressures could have warranted additional rate cuts were it not for tariffs. Markets responded swiftly, with fed funds futures now pricing in 60 basis points of rate cuts by year-end—up from 46 basis points just days earlier. The first cut is fully priced in for September.
Karl Schamotta at Corpay noted that traders “are choosing to interpret Powell’s comments as groundwork for an early-autumn rate cut,” which has weakened DXY sentiment.