Dollar Rebounds Amidst Escalation In Middle East Tensions

(RTTNews) - The U.S. Dollar rebounded against major currencies during the week ended June 20 amidst an escalation in tensions in the Middle East. The U.S. dollar inter alia gained against the euro, British pound, the Australian dollar, the Japanese yen, the Canadian dollar, the Swedish krona and the Swiss franc.

The Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies added 0.54 percent during the week ended June 20. The DXY which had closed at 98.18 on June 13 finished trading at 98.71 a week later. During the week, the index traded between the low of 97.68 recorded on Monday and the high of 99.16 recorded on Thursday.

The Federal Open Markets Committee on Wednesday maintained the target range for the federal funds rate at 4.25 to 4.50 percent and simultaneously warned about stickier inflation and slower growth. It also acknowledged that uncertainty about the economic outlook has diminished but remains elevated. The Fed anticipates the Federal funds rate to fall to 3.9 percent in 2025, implying two more rate cuts in 2025.

In the Summary of Economic Projections, the Fed lowered the GDP growth projection for 2025 to 1.4 percent from 1.7 percent made in March. The unemployment rate projection has been raised to 4.5 percent in 2025. In March, the Fed had projected a level of 4.4 percent. The Fed anticipates PCE inflation rising to 3 percent in 2025 from 2.7 percent projected earlier. Core PCE inflation is also seen rising to 3.1 percent from 2.8 percent projected in March.

Amidst the dollar's rebound, the Euro slipped 0.26 percent against the Dollar. During the week ended June 20, the EUR/USD pair dropped to 1.1523, from 1.1553 a week earlier. The pair ranged between $1.1615 recorded on Monday and $1.1446 touched on Thursday. Data released during the week had showed an unexpected surge in the ZEW Indicator of Economic Sentiment for Germany.

The week ended June 20 witnessed the pound falling 0.86 percent against the dollar amidst the Bank of England's status quo on interest rates. The widely expected policy action by the central bank came in the backdrop of heightened global uncertainty and persistent inflationary pressures. Data released during the week had showed the annual inflation rate in the U.K. edging down to 3.4 percent in May from 3.5 percent in April, matching expectations.

The sterling, which had closed at $1.3566 on June 13 declined to $1.3450 by June 20. The GBP/USD pair traded between a high of 1.3624 touched on Monday and a low of 1.3382 recorded on Thursday.

The Aussie also plummeted against the U.S. Dollar during the week ended June 20. The AUD/USD pair traded between a high of 0.6553 touched on Monday and a low of 0.6445 recorded on Thursday. The slippage for the pair during the week was 0.57 percent, from 0.6488 on June 13 to 0.6451 on June 20.

The Japanese yen also weakened during the week ended June 20 amidst an easing in inflation levels. Data released during the week showed Japan's annual inflation rate edging down to 3.5 percent in May from 3.6 percent in the previous two months. The USD/JPY pair which had closed at 144.10 on June 13, increased to 146.10 in a week's time. The pair ranged between 143.64 and 146.23 during the week.

Earlier in the week, Bank of Japan kept its key short-term interest rate unchanged at 0.5 percent, the highest level since 2008 and matching market expectations. The unanimous decision reflected the central bank's concern about economic growth amid escalating geopolitical risks and persisting uncertainty over U.S. tariff policies.

The Dollar Index is currently at 99.33 as investors brace for Iran's response to the recent attack by the U.S. Amidst the Dollar's surge attributed to safe haven demand, the euro, the pound and the yen have all retreated. The EUR/USD pair has slipped to 1.1467 from 1.1523 at close on Friday. The GBP/USD pair has decreased to 1.3384 from 1.3450 at the end of the previous week. The AUD/USD pair which was at 0.6451 at close on Friday has slipped to 0.6378. The yen has also weakened, lifting the USD/JPY pair to 147.93 from 146.10 at close on Friday.