Dollar Rises but Faces Weekly Loss as Inflation Concerns Grow
The U.S. dollar moved higher on Friday, but it remains on track for a weekly decline against major currencies. Investors have scaled back expectations for interest rate cuts from the Federal Reserve, as rising energy prices increase the risk of persistent inflation.
Rate Cut Expectations Shift Dramatically
Before the escalation of the U.S.-Israel–Iran conflict in late February, markets were expecting two rate cuts this year. However, sentiment has changed significantly. Investors now see even a single rate cut as unlikely in the near term, while other major central banks are adopting a more hawkish stance.
Major Currencies Gain Ground
Several major currencies, including the euro, yen, pound, and Swiss franc, are set to post weekly gains against the dollar. Policymakers across these regions are preparing for higher interest rates in response to the inflationary impact of disrupted energy supplies.
- The euro slipped 0.39% to $1.15350 but is still on track for a 1.1% weekly gain.
- The Japanese yen weakened 0.85% to 159.07 per dollar but is set to rise 0.43% this week.
- The British pound fell 0.78% to $1.3325, while still heading for a weekly gain of nearly 0.8%.
Central Banks Signal Hawkish Policy Shift
According to market analysts, central banks are increasingly confident in addressing inflation risks. Institutions such as the Bank of England and Bank of Japan have signaled readiness to tighten monetary policy if needed.
This follows recent communication from the Federal Reserve suggesting limited appetite for rate cuts, reinforcing expectations of a tighter policy environment.
Oil Surge Drives Inflation Fears
Global energy markets remain a key driver. Brent crude prices have surged roughly 50% since the conflict began, largely due to disruptions in Middle East supply routes, including the critical Strait of Hormuz.
The spike in oil prices has intensified inflation concerns, influencing both currency movements and central bank policies.
Dollar Index and Market Outlook
The dollar index rose around 0.4% to 99.63 but is still heading for a weekly loss of approximately 0.86%, its largest decline since late January. Despite this, analysts suggest that a prolonged downward trend for the dollar remains unlikely.
Global Central Banks Hold Steady but Signal Action
The European Central Bank kept interest rates unchanged but warned about energy-driven inflation risks. Meanwhile, the Bank of England also held rates steady but indicated readiness to act, triggering volatility in bond markets.
The Bank of Japan surprised markets by leaving the door open for a potential rate hike as early as April, supporting the yen.
The Reserve Bank of Australia raised interest rates for the second consecutive month, boosting the Australian dollar, which still posted a weekly gain despite a daily decline.
Fed Maintains Cautious Stance
The Federal Reserve left rates unchanged earlier this week. Chair Jerome Powell stated that it is still too early to fully assess the economic impact of the ongoing conflict.
Meanwhile, the Swiss franc edged lower on the day but remains on track for a weekly gain against the dollar.
