Forex Review. The dollar lacks attention
Which helps the US dollar more, the conflict in the Middle East or the fact that Donald Trump has no time? The Republican won the election in 2024 thanks to his promises to make the American economy a better place. However, at the beginning of the second year of his presidential term, he is dealing with Russia, Venezuela, Greenland, Iran and Cuba. The host of the White House simply does not have time for threats against the Fed and the intention to weaken the greenback. All the better for the “bears” on EURUSD.
While Donald Trump has no time, even his loyal dogs are starting to break loose. FOMC Governor Stephen Miran said that the US labor market has turned out to be better, and commodity prices are more stable. This allows him to adjust his expectations about the fate of the federal funds rate. If in December the official predicted its fall to 2.25% by the end of 2026, now it is limited to 2.75% or 100 bp.
If the main “pigeon” of the Fed has moderated its appetites, what about the rest? The futures market reduced expectations of a cut in the federal funds rate in June from 62% to 59%, which, coupled with a decrease in the number of applications for unemployment benefits to 206 thousand, pushed the EURUSD down.
The fall of the main currency pair is facilitated not only by macroeconomics and monetary policy, but also by geopolitics. This forces speculators who have increased their net shorts on the US dollar to their highest levels since June to actively close them. Investors are concerned about the buildup of American military forces in the Middle East to the highest levels since the US invasion of Iraq in 2003. Donald Trump is considering a preemptive strike on Iran, which will raise oil prices even higher.
In such conditions, the attractiveness of the euro and the yen as safe haven currencies is decreasing. Both Europe and Japan are net importers of black gold. The increase in its value will have a negative impact on their economies. On the contrary, the United States, as a net exporter of energy products, will benefit from this.
Thus, Donald Trump’s focus on international affairs, the absence of presidential pressure on the Fed, the adjustment of the FOMC’s dovish views towards less aggressive monetary expansion, strong macro statistics, and, finally, the growth of geopolitical risks in the Middle East provide a solid foundation for the EURUSD’s southern hike.
