The U.S. dollar strengthened on Thursday as the Federal Reserve held interest rates steady and tensions escalated in the Middle East. The U.S. Dollar Index (DXY), which measures the value of the dollar against six major currencies, climbed above the 99.00 mark during Asian trading hours. In a post-meeting press conference on Wednesday, Fed Chair Jerome Powell signaled that inflation remains somewhat above target and could rise in the coming months.
He noted that the tariffs imposed by U.S. President Donald Trump have had an impact on inflation. Powell also indicated that ongoing policy uncertainty would keep the Fed in a rate-hold stance, with any future rate cuts contingent on improvements in labor and inflation data. The Federal Open Market Committee (FOMC) projected around 50 basis points of interest rate cuts through the end of 2025, maintaining a cautious outlook while supporting the current policy stance.
Fed holds rates amid tensions
Heightened safe-haven demand has also boosted the U.S. dollar due to escalating tensions in the Middle East. U.S. officials are preparing for a possible strike on Iran in the coming days, following statements from President Trump, who said he had approved attack plans but held off to see if Tehran would abandon its nuclear program.
Trump criticized Iran’s Supreme Leader Ayatollah Ali Khamenei’s declaration that “the Iranian nation will not surrender,” warning of “irreparable damage” if the U.S. directly joins the Israel-Iran conflict. The heightened geopolitical risks have led to increased demand for the U.S. dollar as a safe-haven asset, impacting other major currencies. The GBP/USD remains subdued, trading around 1.3410, while the EUR/USD pair declined to near 1.1465 during the Asian session.
Gold prices edged higher during the Asian session, though they lacked follow-through buying, as the Fed’s hawkish pause lifted the USD to over a one-week high, capping gains in XAU/USD. The combination of steady U.S. monetary policy and geopolitical risks continues to shape the forex market dynamics, with investors closely monitoring developments in the Middle East and their potential impact on global markets.