The U.S. dollar traded close to a 10-month high on Monday, as investors approached the week cautiously ahead of a series of key global central bank meetings taking place against the backdrop of escalating geopolitical tensions in the Middle East.
At least eight major monetary authorities — including the Federal Reserve, European Central Bank, Bank of England and Bank of Japan — are scheduled to hold policy meetings this week to determine interest rate decisions. These gatherings mark their first since the outbreak of the ongoing conflict involving the United States and Israel against Iran.
Investors are closely monitoring how policymakers will assess the potential impact of rising oil prices on global inflation and economic growth, a key concern as the conflict threatens energy supply routes.
Currency strategist Carol Kong of Commonwealth Bank of Australia said the war presents a complex policy challenge for central banks.
“The conflict creates downside risks to economic growth while also pushing inflation higher,” Kong noted, adding that policymakers’ responses will largely depend on whether inflation levels in their economies are currently above or below official targets.
Currency Markets React
Ahead of the central bank meetings, the dollar gave up part of last week’s gains but remained broadly strong.
The euro recovered slightly from a seven-and-a-half-month low, rising 0.14% to $1.1433, while the British pound gained 0.17% to $1.3245 after recently hitting a three-and-a-half-month low.
The U.S. Dollar Index slipped marginally to 100.20, though it remained close to the highest level recorded in nearly ten months.
Strait of Hormuz Concerns
Geopolitical developments continued to influence market sentiment. Donald Trump said Washington is urging other countries to help safeguard the Strait of Hormuz, a critical global shipping route for oil and gas exports.
Speaking over the weekend, the U.S. president warned that the NATO alliance could face a “very bad” future if member states fail to assist in ensuring the waterway remains open.
Oil prices eased slightly on the possibility that global energy supply disruptions could be contained, although financial markets remained volatile as uncertainty over the conflict’s duration persisted.
According to Jorry Noeddekaer, head of global emerging markets and Asia at Polar Capital, the conflict may have limited long-term impact on central bank policies if it proves short-lived.
“As things stand, the likelihood of a significant shift in the current policy trajectory of central banks around the world remains limited,” he said.
Australia and Japan in Focus
Elsewhere in currency markets, the Australian dollar strengthened 0.55% to $0.7019, supported by expectations that the Reserve Bank of Australia may raise interest rates at its upcoming meeting. Markets are currently pricing in a 74% probability of a 25-basis-point hike.
Analysts expect further tightening as inflationary pressures persist in Australia, potentially worsened by rising global energy costs.
Meanwhile, the Japanese yen remained under pressure near the 160-per-dollar level, trading at around 159.44. Japan’s heavy dependence on energy imports from the Middle East has heightened concerns over the country’s economic outlook.
Naomi Fink, chief global strategist at Amova Asset Management, said the situation presents a difficult policy dilemma for the Bank of Japan.
She warned that rising energy import costs, combined with a weaker yen, could worsen Japan’s trade balance and restrict the central bank’s policy flexibility.
Other Currency Movements
The New Zealand dollar also edged higher, rising 0.47% to $0.5803, while China’s offshore yuan strengthened slightly to 6.9002 per dollar.
Meanwhile, senior economic officials from the United States and China held discussions in Paris on Sunday, which sources described as “remarkably stable.” The talks reportedly explored potential cooperation in areas such as agriculture, critical minerals and managed trade between Donald Trump and Chinese President Xi Jinping.
The meetings come as markets continue to assess the broader economic implications of geopolitical tensions and upcoming monetary policy decisions worldwide.