Insights 
VT 
The US Dollar remains slightly robust amid rising geopolitical tensions between Israel and Iran, with the DXY at 97.93. These tensions could keep risk sentiment weak, affecting high-beta currencies like the AUD and NZD if they continue to escalate.
A de-escalation could potentially diminish the dollar’s strength, giving support to risk proxies. This week’s focus is on the FOMC meeting, with markets anticipating two interest rate cuts by year-end. Any indication from the Fed opposing these expectations could give the dollar a boost.
Dollar Momentum Update
The daily momentum for the dollar shows mild bearish bias, but RSI indicates it may rise from near-oversold levels. The dollar faces resistance at 99.20 and 99.70, with support at 97.60. Upcoming data includes the Empire Manufacturing report.
In other market news, EUR/USD climbed to 1.1600 amid a weaker US dollar, while GBP/USD rose above 1.3600 due to geopolitical focus. Gold retreated from multi-week highs nearing $3,400. Meanwhile, Chinese data suggests it’s on track for its 2025 growth target.
The Dollar Index hovering near 97.93 shows that despite the mounting tension in the Middle East, market participants are not yet exhibiting panic-driven demand for safe havens. However, the risk environment remains choppy. With Iran and Israel in view, it’s clear that any sudden flare-up or development could sharply knock high-beta currencies such as the Aussie and Kiwi, which already struggle when sentiment wavers.
On the other hand, if there’s even a cautious diplomatic pullback, we’d likely see renewed interest in these higher-risk currencies. That scenario would probably come with softer Dollar demand, as the premium for safety comes down. It’s a fine balance — and one that will be tested through this week.
Federal Reserve Anticipations
Most attention here lies with Wednesday’s Federal Reserve decision. Markets lean towards expecting two rate cuts before year-end. Any commentary or dot plot changes that lean hawkish from Powell’s side could upend that outlook — and quite rapidly embolden Dollar buyers. If the Fed suggests patience or shows concern about sticky inflation, then carry remains attractive, and we would look for strength towards that 99.70 level. Conversely, dovish tones or downward revisions to growth projections could send DXY drifting towards the 97.60 floor.
Currently, momentum remains somewhat against the Dollar on the daily charts, which is clear. That said, the RSI sitting close to oversold hints there’s room for a short-term bounce. We’re treating any pullback to below 98.00 as an area to reassess, especially ahead of key macro data.
Now, the Empire Manufacturing report might seem like a second-tier release, but right now, soft data often moves spot prices more than it used to. Any big divergence there from estimates could sharpen market positioning ahead of the Fed decision.
Elsewhere, the Euro climbed towards 1.1600, taking advantage of a slightly worse-off Dollar. The move seemed driven more by Dollar weakness than any newfound confidence in the bloc’s data. Sterling also advanced as traders focus on geopolitical risks, further extending above the 1.3600 handle. There’s little in UK-specific news behind the move, making it susceptible to retracement if conditions firm up again for the greenback.
Gold, which spiked earlier on safe-haven flows, gave up ground after reaching toward $3,400. The pullback indicates that some of the geopolitical premium may already be fading, or at least being pared in the short-term before fresh catalysts emerge. Bias remains to the upside for bullion, especially if Fed messaging softens or risk-off tension flares again.
Chinese macro indicators did offer a more upbeat undertone, suggesting steady progression towards next year’s growth numbers. That tone, while not yet strong enough to drive global risk on its own, does give some context for future positioning around commodities and Asian FX.
So we remain alert, especially for short-term dislocations. Anyone positioned around rate-sensitive products or volatility plays should be watching the FOMC closely, but also keeping an eye on risk sentiment shifts driven by headlines from the Middle East. The next five to seven sessions could present a mix of opportunity and false signals.
